Highlights

• Our data mapping points to negative retail sales growth in May. We see the official ABS measure dropping 0.6% on a month-on-month basis as increasingly cautious consumers react to inflationary and interest rate pressures.
• Our series was notably weaker than the ABS in March (0.4% vs 1.6% m/m) but much stronger than the ABS in April (1.9% vs 0.9% m/m). We note this recent volatility as a risk to our May forecast.
• Price pressures continue to mount across much of the economy and the RBA’s surprise 50 basis point hike last week underlines the RBA’s focus on inflation. This combination of higher inflation and interest rates represents a challenge for consumers and consequently for the retail sector.

NAB Chief Economist, Alan Oster commented

Our data show a drop in retail sales in May, albeit from generally strong levels seen earlier in the year. Inflationary concerns continue to escalate, both at home and abroad, with food and petrol key drivers. The RBA’s 50 basis point hike last week increases the chances of further rate rises (we expect further 50bp hikes in July and August), with a materially lower outlook for the consumer as a result.

That said, the NAB Monthly Business Survey continues to report generally strong business conditions, albeit notably weaker confidence for the retail sector. The May survey recorded easing cost growth, albeit from record highs in April. However, retail prices were back up to 3.1% at a quarterly rate.

Our weekly consumer tracking data, released fortnightly, provides a timely, high frequency indicator on the state of the retail and hospitality sectors. This data has showed signs of slowing (from high levels) over recent weeks. There are also indications that consumers are substituting their spending towards essentials like food and fuel at the expense of discretionary spending.

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