Australian retail sales likely to have surged in June as a result of cold weather

Australian retail sales are likely to have surged in June due to cold weather. The cold weather is expected to have stimulated apparel sales and therefore supported growth in retail sales sector as a whole, said Societe Generale in a research report. Moreover, the department stores are also expected to have gained. On the other hand, food sales are expected to have gained, although at a much weaker rate than the previous month’s 0.7 percent rise.

It is evident that severe competition in the supermarket sector has pulled down prices and has therefore been a drag on the overall data for some time. However, these pressures are expected to cool over time rather than deepen given that new entrants are the main driving force, noted Societe Generale.

Moreover, food price inflation seems to have troughed globally. Also, flooding and heavy rain in the south-east of the country in late-May/early-June might have stimulated food prices. Meanwhile, household goods sales are expected to have recovered following declines in the earlier two months.

This is possibly in the backdrop of continued strong housing activity. Overall, the entire annual retail sales growth of around the 3.5 percent mark is consistent with growth in disposable household income and therefore quite sustainable, stated Societe Generale.

The inflation-adjusted quarterly data are expected to show a rather weaker growth. Given the current April and May data, and the June forecast, nominal sales are expected to have risen 0.5 percent quarter-on-quarter in the second quarter, the same as in the previous quarter.

“We expect real sales to have also matched the Q1 performance with a 0.5 percent qoq expansion, notwithstanding that overall CPI rose 0.6 percent qoq in Q2 after declining by 0.1 percent in Q1 (seasonally adjusted)”, added Societe Generale.

But, the swings in the prices took place outside of the scope of retail date and thus another weak growth is likely in the implicit retail price deflator. Within the subsectors of the retail trade, strength in catering and strong growth in apparel sales in anticipated in spite of an exceptionally robust first quarter. On the contrary, household goods’ sales are expected to have shrunk following the great strength late in 2015 and early 2016. Food sales are likely to have been weak (0.4 percent quarter-on-quarter); however, the best in four quarters.

“A moderate expansion in retail sales would be consistent with our view moderate growth in overall private consumption in Q2”, said Societe Generale.