Finance
RBA’s First Female Governor Takes Charge: Will Interest Rates Hold Steady or See Year-End Hike?
Interest rates are unlikely to change after a Reserve Bank of Australia board meeting but a final hike before the end of the year is still on the table, as the central bank’s first female governor gets to work.
The RBA has left the official cash rate unchanged at 4.1 per cent for the past three months, following its regular meeting on monetary policy.
Tuesday’s meeting will be the first under the leadership of Michele Bullock, who last month replaced Philip Lowe.
A total of four percentage points of interest rate hikes has been delivered since April last year when the cash rate was at a record low of 0.1 per cent.
A surge in inflation forced the central bank to start hiking interest rates, but the pace of price growth has since been moderating, giving the RBA space to stay on the sidelines.
An uptick in the August consumer price index, particularly across services and core measures, has injected some complexity into the inflation battle.
But the central bank is widely expected to wait for the full quarterly set of price data due later this month before considering any further tightening.
Thirty of 32 economists surveyed by Reuters expect the central bank to keep rates steady at Tuesday’s meeting, with a small majority predicting one more hike before the end of the year to take the cash rate to 4.35 per cent.
Economic teams at the big four banks are all tipping a hold in October with NAB the only one expecting one more 25 basis point rise in this cycle.
ANZ believes the RBA is on an extended pause but warns the chance of another hike has edged higher.
“While much of the lift in inflation reflects volatile items, such as petrol prices, which we think the RBA can look through, there was also a little more inflation in other parts of the basket versus our expectations,” ANZ head of Australian economics Adam Boyton and his colleagues wrote in an economic note.
The ANZ economists said signs that inflation could be running a little higher than expected suggest any move in 2023 or early next year will likely be a hike, rather than a cut.
Nationals leader David Littleproud on Tuesday called on the RBA to acknowledge the cost-of-living pressures that continue to weigh on Australians.
“It’s really hurting out there at the moment and hopefully the RBA understands the pain,” he told Nine’s Today Show.
“They’ve just (got to) put the finger out the window and feel the breeze.”
Meanwhile, consumers have been reporting extremely low confidence levels by historical standards, with ANZ and Roy Morgan’s latest index recording another result well below the 111.1 monthly average since 1990.
Confidence did improve a little last week, however, lifting 1.8 points to 78.2.
The improvement was recorded despite the monthly consumer price index, which was released last week, lifting to 5.2 per cent, fuelled by higher prices at the petrol pump.
Weekly inflation expectations also softened a minor 0.2 percentage points to 5.2 per cent despite the well-publicised growth in consumer prices.
The more optimistic week for consumers was driven by a 3.2 point lift in how households were feeling about financial conditions at the moment.
The ‘future financial conditions’ component also lifted a convincing 2.4 points.
Finance
Coles credits Pokemon with lifting supermarket sales
Supermarket giant Coles has reported a significant growth in its supermarket sales for the quarter ending in March, thanks in part to a successful Pokemon collectibles campaign. The company’s grocery sales for the 12 weeks leading up to March 24 reached $9.07 billion, representing a 5.1% increase from the same period a year ago.
Coles attributed this success in part to the popularity of its Pokemon Builders campaign, which featured cardboard models as collectible items. Chief Executive Leah Weckert noted that the campaign helped boost sales compared to the previous year when no such collectible campaign was in place.
The increase in supermarket sales helped offset a drop in sales at Coles’ Liquorland chain, which saw a 1.9% decrease in sales totaling $786 million. This decline was attributed to customers reducing their discretionary spending on alcohol due to economic pressures, as well as the bottle shops transitioning away from less profitable bulk sales.
In addition to the success of the Pokemon campaign, Coles also saw strong growth in its e-commerce supermarket sales, which surged by 34.9% to $856 million. Online alcohol sales also experienced a 4.1% increase to $44 million. The number of customers using the Coles app each month also rose significantly, up by 44.1%.
Despite the overall growth in sales, Coles reported that total supermarket price inflation moderated to 2.2% in the latest quarterly figures, down from 3.0% in the previous period. This provided some relief to financially squeezed customers, with prices falling for certain fresh produce items while bakery prices rose due to wheat commodity prices.
To combat stock loss, Coles has implemented anti-theft initiatives like bar gates and “skip scan” technology in several hundred of its 851 supermarkets. Additionally, a new anti-theft feature called “bottom of the trolley” has been added to identify bulk items as they are added to a cart.
Coles’ half-year results from February showed the supermarket gaining traction on its competitor Woolworths. The upcoming third-quarter sales results from Woolworths, set to be reported on Thursday, will reveal if this momentum has continued.
Both Coles and Woolworths are currently facing public and political scrutiny, including state and federal parliamentary inquiries and an investigation by the competition and consumer watchdog over allegations of price gouging. Despite these challenges, Coles remains focused on providing value to customers and achieving continued growth in its supermarket sales.
Fashion
Retailers feel pinch as shoppers stay home, spend less
There has been a noticeable decline in retail sales in Australia as shoppers opted to stay home and cut back on non-vital spending in March. According to the official Australian Bureau of Statistics count, retail sales slid by 0.4 per cent, a figure lower than the 0.2 per cent increase predicted by analysts.
Factors contributing to the decrease in retail sales include higher mortgage repayment costs, a growing tax burden, and elevated prices impacting Australian consumers. Weakness in retail sales has particularly affected discretionary goods and services, with clothing, footwear, and personal accessory retailing falling by 4.3 per cent, and department store sales declining by 1.6 per cent.
The only segment to see growth in March was food retailing, which saw a modest increase of 0.9 per cent. Other industries, such as household goods retailing, other retailing, and cafes, restaurants, and takeaway food services, experienced decreases in sales for the month.
ABS head of retail statistics, Ben Dorber, noted that the 0.8 per cent increase in yearly spending compared to the previous year was the weakest growth on record outside of pandemic and GST-related fluctuations. Dorber attributed the decline in retail spending to ongoing cost of living pressures impacting consumers.
Following the release of the retail sales data, economists have expressed concerns about the impact of financial pressures on consumer demand. Sean Langcake, from Oxford Economics Australia, highlighted that vital inflation for items like health, education, rent, and mortgage costs is squeezing household budgets, leading to restrained discretionary spending.
The subdued retail sales figures come on the heels of unexpectedly high inflation data, which has dampened hopes for interest rate cuts in the near future. With price inflation affecting vital items, such as housing-related components, banks like the Commonwealth Bank have pushed back their projections for interest rate cuts from September to November.
CBA’s head of Australian economics, Gareth Aird, emphasized that while the Reserve Bank of Australia has succeeded in reducing inflation for non-vital items, vital components are proving more challenging. Aird suggested that strong population growth, driven by net overseas immigration, is contributing to upward pressure on the consumer price index basket, prolonging the decline in inflation rates.
As retailers face the impact of subdued consumer spending, analysts are closely monitoring economic indicators to gauge the health of the retail sector and the broader Australian economy.
Finance
Australian Consumer Confidence Reaches 20-Month High
Household budgets are still under pressure but green shoots of optimism are starting to sprout in the consumer sector.
Consumer confidence as measured in weekly and monthly surveys has been stuck deep in the doldrums as interest rates went higher and cost of living pressures intensified.
However modest improvements have been logged in recent months, coinciding with convincing progress on inflation and talk of interest rate cuts.
The March update of the Westpac and Melbourne Institute monthly survey, which is due for release on Tuesday, hit a 20-month high in February but was still below the 100 neutral mark.
Since then, consumers have observed a mixed bag of data, including a return to real wage growth – but only just – and a gloomy report card for the economy in the December quarter.
Also on Tuesday, National Australia Bank’s business conditions gauge for February is scheduled.
The private sector has proved resilient in the face of economic headwinds but the January update revealed waning momentum.
The business conditions gauge, which captures profitability, hiring movements and sales activity, broke a two-year streak of above-average conditions over the month, falling to just below that threshold.
At the same time, confidence in the business sector improved a little but was still below the long-run average.
Data on the total value of residential dwellings is also due from the Australian Bureau of Statistics on Tuesday, as well as a speech from Sarah Hunter, Reserve Bank assistant governor (economics) at the AFR Business Summit.
More insights into the consumer will be released on Wednesday, with Commonwealth Bank’s report on household spending due.
Monthly business turnover is also slated from the ABS on Wednesday, and then overseas arrivals on Thursday.
Meanwhile, the Australian stock market is expected to dip on Monday, after Wall Street ended narrowly weaker on Friday amid profit-taking by investors.
The decline followed a US labour market report that showed more new jobs than expected were created in February while the jobless rate rose to 3.9 per cent.
The US S&P 500 index lost 32.99 points, or 0.64 per cent, to end at 5,124.37 points, while the Nasdaq Composite lost 185.22 points, or 1.14 per cent, to 16,085.11.
The Dow Jones Industrial Average fell 66.28 points, or 0.17 per cent, to 38,725.74.
The soft finish led Australian share price index futures 47 points lower to 7811, paving the way for a softer start to the trading week.
On Friday, the local bourse closed above 7,800 points for the first time, on signals that interest rate cuts in Europe and the US could happen sooner rather than later, giving investors hope the Reserve Bank of Australia could follow suit.
The S&P/ASX200 finished at 7,847.0, up 83.3 points, or 1.1 per cent for the day and up 1.3 per cent for the week.
The broader All Ordinaries climbed 80.8 points, or 1.01 per cent, to 8,107.5.
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