Sales stagnate as consumers rein in spending

The value of retail sales did not budge in April despite high inflation and strong population growth, suggesting that consumers feeling the financial pinch are pulling back on how much they are buying.

But, in a promising sign the relentless rise in food prices may be coming to an end, the value of food purchases slipped 0.1 per cent, the first monthly drop since late 2021.

Overall, the Australian Bureau of Statistics figures show retail turnover was flat in April after growing by 0.4 per cent the previous month and a 0.2 per cent rise in February, dragging the annual growth rate down to 4.2 per cent, far below its peak of 19.3 per cent last August.

The result adds to other signals, including higher unemployment and tumbling building approvals, that activity across the economy is moderating under pressure from 11 interest rate hikes.

The ABS's head of retail statistics, Ben Dorber, said turnover has "plateaued over the last six months as consumers spent less on discretionary goods in response to cost-of-living pressures and rising interest rates".

Only two categories of retailing, clothing and footwear and department stores, experienced an increase in turnover in April, while purchases of household goods fell by 1 per cent and spending at cafes, restaurants and takeaway food services - which have been growing strongly since pandemic-related restrictions eased well over a year ago - dropped 0.2 per cent lower.

ANZ economist Madeline Dunk said the decline in restaurant, cafe and takeaway turnover suggested recent weakness in some retail categories "may be spreading to more areas of discretionary spending as cost-of-living pressures squeeze household budgets".

The results came as a separate ABS report showed businesses, particularly in mining, professional services, real estate, construction, manufacturing, wholesale, retail and health care, have been able to cash in on soaring post-pandemic demand.

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Mining companies saw their before-tax profit almost double last financial year, soaring from $98 billion to $182 billion, while real estate profits surged from less than $61 billion to more than $102 billion.

Pre-tax profit in the retail sector, meanwhile, surged from $17.5 billion before the pandemic to more than $33.3 billion last financial year.

The results show how supply chain disruptions and strong demand have enabled many businesses to raise their prices, driving inflation.

ABS head of business indicators Rob Ewing said that, coming out of the pandemic, almost all industries recorded higher operating profits.

"Profitability was driven by higher demand for goods and services, which saw businesses pass higher costs on to consumers," Mr Ewing said.

KPMG economist Michael Malakellis said weak consumer sentiment and heightened uncertainty about further interest rate hikes could lead to a further moderation in spending in coming months.

He said this, combined with the recent lift in unemployment, suggested that interest rates could be close to their peak.

Commonwealth Bank's head of Australian economics, Gareth Aird, does not expect a further rate hike when the Reserve Bank of Australia board meets in early June.

Mr Aird said there was a 90 per cent chance of a rate pause, not least because, in his assessment, the federal budget does not add to inflation pressures in the economy.

There will be an update on inflation in April next week, but Mr Aird said that would have to show price pressures growing much faster than expected to make the central bank consider a rate hike.

"The run of recent data, coupled with our take on the Commonwealth Budget, means at this juncture we do not think the June board meeting is 'live'," he said.

But ANZ economists expect a further rate hike no later than August, with "the risks skewed toward more and earlier action".