End-of-financial-year promotions and discounts have not been enough to arrest a sharp fall in retail sales in Canberra and across the country.
Shop turnover slumped by 1 per cent in the ACT in June, contributing to a 0.8 per cent decline nationwide as households responded to the pressure from rising living costs and high interest rates to pull back heavily on discretionary spending.
The June fall in national turnover, the largest since December last year and much weaker than markets had expected, has intensified speculation the Reserve Bank of Australia is close to, if not already at, the peak of the current interest rate tightening cycle.
The strength of household spending has been a key area of uncertainty for the central bank in deciding whether or not more rate hikes are needed. The result, combined with data showing inflation dropped to 6 per cent in the June quarter, could convince it to keep the cash rate steady at 4.1 per cent.
Markets had put the likelihood of an August 1 rate rise at just 10 per cent before the latest data release, though economists at Westpac, Commonwealth Bank and HSBC still expect the RBA board will increase the official cash rate to 4.35 per cent next Tuesday. ANZ economists tip an extended pause.
Overall, the annual rate of retail sales slowed to 2.3 per cent in June, which Westpac economists said was comparable to subdued levels reached just before the pandemic.
Westpac senior economist Matthew Hassan said that, on a per capita basis, annual retail turnover was "basically flat".
ANZ economists Madeline Dunk and Adam Boyton said the fall in the value of turnover suggested the volume of retail sales in the June quarter shrunk by 0.5 per cent, the third consecutive quarterly decline. The only other time this has occurred was during the global financial crisis, they said.
"[The] fall in retail sales paints a stark picture about how households are dealing with the current economic environment," the ANZ economists said. "Spending is slowing as household budgets are squeezed by rising mortgage repayments and cost-of-living pressures."
The Australian Bureau of Statistics retail figures show families are trimming their spending on discretionary items.
Even restaurants, cafes and takeaway food outlets, which have experienced a virtually unbroken run of growth in sales since the start of 2022, suffered a moderate 0.3 per cent drop in turnover.
The one area to experience a lift in the value of purchases was food. Turnover in the sector increased by 0.1 per cent as households prioritised essential spending and inflation pushed up prices.
ABS head of retail statistics Ben Dorber said families were responding to the rising cost of food by "changing to cheaper brands or by simply buying less".
Mr Dorber said the June sales slump showed the 0.8 per cent spike in turnover the previous month, driven by extra discounting and promotional events, was temporary.
Meanwhile, growth in the prices paid by producers in making and delivering goods and services is continuing to moderate.
The ABS's producer price index increased 0.5 per cent in the June quarter, its smallest increase in more than two years, dragging annual growth down to 3.9 per cent after reaching 6.4 per cent late last year.
The ABS said the increase was largely driven by the construction sector, where ongoing skills shortages and elevated materials and energy costs continued to drive prices higher.