Highlights

• Our data mapping points to a slight drop in retail sales in August. We see the official ABS measure falling 0.2% on a month-on-month basis. Our model shows a flat result for ABS measure last month, despite the ABS measure recording a very strong 1.3% gain in July. It remains unclear why our data diverged so significantly from the ABS last month.
• Price pressures continue to bite, which has seen the RBA hike rates 50 basis points at each of the last four meetings, to 2.35% (from just 0.1% at the start of the year). We see a further two 25bp rises before the end of 2022. This is likely to dent consumer spending in late 2022 and early 2023, although the resilience of consumers continues to surprise, at least in the data so far.

NAB Chief Economist, Alan Oster commented

This month’s index follows a departure from our data and the official ABS measure last month. While our high-frequency weekly consumption data shows retail spending tracking sideways (although hospitality continues to outperform) the ABS data has outperformed our expectations. Whether this continues remains to be seen.

The August NAB Monthly Business Survey recorded more encouraging data for the retail sector – trend conditions remain at a very elevated +26.6. Product price growth remains at record levels– the survey measure of retail final product prices rose 3.3% at a quarterly rate in August, unchanged from June.

It remains our view that central bank rate hikes in response to high inflation will see GDP growth moderate in 2023, to around 1.75% y/y. While retail spending has remained robust through the pandemic, higher official interest rates will eat into disposable income and are very likely to lead to reduced spending. While this is not likely to bite until late 2022, 2023 is likely to be a slower year for consumers and therefore the retail sector.

For more information, please see the NAB Cashless Retail Sales Index (August 2022)