Household spending has collapsed to levels not seen since the global financial crisis, as a double blow of runaway inflation and soaring interest rates hammers family budgets.
Retail sales volumes, a measure of how much consumers bought, fell 0.5 per cent in the June quarter of 2023 to $35.2 billion, according to fresh figures released by the Bureau of Statistics on Thursday.
This was the third consecutive quarter that the measure fell, a downward spiral that has not been seen since the economic disarray of the GFC.
In the face of surging cost of living pressures, households are cutting back on eating out, ordering takeaway, and are buying less at the checkout. Purchases on clothing and other household items fell dramatically.
The Bureau of Statistics said the declines confirmed the extent that consumers had pulled back on spending in response to cost-of-living pressures.
“The widespread fall in sales volumes reflects what retailers have been telling us about consumers focusing on essentials, buying less or switching to cheaper brands,” Ben Dorber, the Bureau’s head of retail statistics said.
Despite the Reserve Bank extending its relief to households earlier on Tuesday – leaving the cash rate steady at 4.1 per cent, outgoing governor Phil Lowe cautioned that family budgets remain under pressure.
“Many households are experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income,” governor Lowe warned.
While the central bank has pushed up interest rates at a pace not seen in living memory, it has so far failed to stop retail prices from increasing. Thursday’s data revealed prices for retail products still increased by 0.9 per cent in the June quarter.
Describing the data in a note titled, “Three quarters of decline – about as bad as it gets for retail”, Westpac senior economist Matthew Hassan noted that the volume of retail sales had fallen considerably from the post-pandemic retail surge experienced in the 12 months to the 2022 September quarter.
“Annual growth in sales volumes has turned abruptly,” he said.
NAB’s head of market economics, Tapas Strickland, said retail volumes were likely to continue their downward trend.
“Some further correction is likely and forward orders for retail were very weak in the NAB Business Survey in June, suggesting more caution in the retail space,” Mr Strickland warned.
Despite the pain felt by households which has slowed demand in recent months, economists have refused to rule out another rate hike this year.
“Given the upside pressures on inflation, the near-term risk on rates remains clearly to the upside,” NAB chief economist Alan Oster said.
NAB anticipates that the Reserve Bank will inflict one final hike in November which would see the cash rate peak at 4.35 per cent.