Australians Busy Shopping, Add to Rate Risk

Australia's retail sales rose by more than expected in November as strong growth in jobs and incomes offset increases in interest rates and petrol prices, suggesting rates may yet have to rise again to cool demand. Wednesday's government data showed retail sales climbed 0.8 percent seasonally adjusted in November to A$20.07 billion ($17.6 billion). That handily beat forecasts of a 0.5 percent gain while sales increased by 8.1 percent on the year, the equal highest increase since June 2004.

"This was a good result across the board which highlights the underlying strength of the domestic economy amidst concerns over the global growth outlook," said Adam Carr, a senior economist at UBS.

However, such resilience also added to the risk that the Reserve Bank of Australia (RBA) would have to lift interest rates yet again to cool demand and contain inflation.

The Australian dollar jumped almost half a cent to $0.8835 while bill futures slid as the market priced in a greater chance the RBA could hike as early as its February policy meeting.

"Generally this is one of the figures to put in the mix to support another rate rise on Feb. 5," said Michael Workman, a senior economist at Commonwealth Bank of Australia.

"The volatility in financial markets may delay a move because it creates uncertainty about world growth, but the figures show consumers are confident and willing to spend," he added.

Indeed, analysts noted that the central bank had hiked rates to an 11-year high of 6.75 percent right at the start of November, and yet Australians kept shopping undeterred.

Even a 6 percent rise in petrol prices over the month hardly put any dent in spending.


"Consumers are clearly very confident and much of that is down to the labour market, which remains remarkably healthy," said Brian Redican, a senior economist at Macquarie.

Some 300,000 new jobs were created in the year to November, a blistering pace for an economy with a workforce of 11 million.

Redican noted that other figures out on Wednesday showed job vacancies rose a hefty 6.0 percent in the three months to November, boding well for yet further employment gains.

"While people are confident in their jobs and incomes, they will keep spending," said Redican. "Christmas looks like proving that."

Anecdotal evidence on the holiday sales from retailers has been very upbeat.

Electronics retailer JB Hi-Fi Ltd said on Monday its post-Christmas sales were strong and consumer sentiment was still solid despite increasing worries about the global economy.

"Sales have basically continued the strong trend that we'd seen in the marketplace," JB Hi-Fi Chief Executive Richard Uechtritz told Reuters.

In all, Australia's retailing industry estimated shoppers spent A$36.5 billion in the run-up to Christmas, and expects another A$6 billion of post-season sales.

And data out earlier this week showed vehicle sales ran at a record in December, capping a rousing year which saw sales top 1.0 million vehicles for the first time ever.

"The maintenance of sustainable prices is predicated on domestic demand easing, yet the economy continues to power ahead, driven by household, business and government expenditure," said Joshua Williamson, a senior strategist at TD Securities.

"With capacity still stretched, the acceleration in demand will further add to inflation pressures," he argued. "If it were not for the concern over global growth, an increase in interest rates would likely be a done deal."