Black Friday Lifts Australian Retail Sales, but Rate Cut Still Likely

Image Credit: The Australian.com 

Australian retail sales saw their biggest increase in 10 months in November, driven by Black Friday discounts that attracted budget-conscious shoppers. However, the 0.8% seasonally adjusted gain fell short of the forecasted 1.0%, indicating that the boost is unlikely to hinder potential interest rate cuts by the Reserve Bank of Australia (RBA).  

Analysts believe the rise may have simply shifted demand forward from Christmas, with markets still predicting a possible RBA rate cut in February. Data from the Australian Bureau of Statistics (ABS) showed sales climbing from a 0.5% increase in October, reaching A$37.1 billion ($23 billion), a 3.0% annual gain. The ABS noted that promotional activities now span the entire month of November, reducing the traditional focus on Black Friday weekend.

Key sectors experienced notable growth, with department store sales up 1.8% and café and restaurant spending rising 1.5%. However, Ben Udy, lead economist at Oxford Economics Australia, cautioned that the seasonal adjustments might not accurately reflect underlying consumption trends. “The solid rise in November is likely to be offset by a contraction in December,” he added, referencing last year’s sharp decline in December sales following November gains.

Despite some support from slowing inflation and income tax cuts, consumer spending has remained weaker than anticipated. This contributed to the RBA’s dovish pivot last month. The central bank has held interest rates steady at 4.35% for over a year, maintaining that the rate is sufficiently restrictive to curb inflation while preserving employment gains.

Recent data has bolstered market expectations for a rate cut in February. Core inflation eased on Wednesday, leading swaps to imply a 60% likelihood of a February rate reduction, with futures reflecting a 78% probability. Both the Commonwealth Bank of Australia and Nomura have revised their inflation forecasts lower for the fourth quarter, now predicting trimmed mean inflation at 0.5% and 0.4%, respectively, compared to the RBA’s 0.7% estimate.

Andrew Ticehurst, senior economist at Nomura, said, “We previously estimated a 60% probability of a 25 basis-point rate cut in February, which has now likely risen to at least 70%.” He added that an increase in the unemployment rate in December, their base case, would further strengthen this outlook.

The RBA will have the December retail sales report and updates on the tight labor market to guide its next decision, scheduled for February 18.

Paraphrasing text from "Reuters" all rights reserved by the original author.