Australian retail sales rose by more than expected in August as tax cuts and warmer weather encouraged households to spend more on dining out and on clothing and footwear, reinforcing the case for interest rates to remain on hold for the time being.

Sales advanced 0.7% from the prior month, exceeding a 0.4% estimate in the biggest monthly increase since January, official figures showed on Tuesday. The outcome follows an upwardly revised 0.1% result in July. 

In response, the currency and yields on policy-sensitive three-year government bonds edged higher. 

“More people were out dining at cafes and restaurants, enjoying the warm end to the winter months,” said Robert Ewing, ABS head of business statistics. “This year was the warmest August on record since 1910.”

Retail sales can be an important consideration in policy decisions given consumption accounts for more than half of gross domestic product. The Reserve Bank has repeatedly highlighted the outlook for household spending as a key uncertainty following 13 rate hikes between May 2022 and November 2023. 

Tuesday’s data showed retail sales rose 3.1% from a year earlier, compared with 1.7% in August 2023. The improvement comes as the government’s tax cuts and energy rebates kicked in on July 1. The household savings ratio has also fallen.

The RBA meets again in November, with economists and markets predicting its next move will be down. The rate-setting board has set a high bar to tightening further while saying it’s still premature to consider cuts.

The consensus among economists is that the RBA will hold rates at 4.35% this year, though some believe a cut in November can’t be ruled out, particularly if third-quarter inflation at the end of this month surprises on the downside. 

Tuesday’s retail data also showed:

  - Bloomberg