Paul Bloxham: HSBC chief economist on Australia's retail sales rebounding after winter downturn

Australian retail sales rebounded by more than expected in August as warmer weather brought forward spring spending after a midwinter slump.

According to the Australian Bureau of Statistics, retail sales rose 0.7 percent - beating out initial predictions of 0.4 percent.

HSBC chief economist Paul Bloxham says it's clear recent tax cuts have driven up consumer spending.

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Episode Transcript

Speaker 1 (00:00):
New SIBU ejectaim twenty five to seven Australian retail sales
have rebounded, so there are zero point seven percent, but
expectations heading into the data release we're looking at about
zero point four so twice as good as expectations. It's
all being put down to a warm August. It follows
growth of just zero point one percent in July. Paul
Bloxham is HSBC's chief economist and his weathers this evening. Hi,

(00:23):
Paul good A, So how has a warm August encouraged spending?

Speaker 2 (00:28):
Well, these numbers are seasonally adjusted, so strictly speaking they
should adjust for the fact that there are weather patterns,
of course, but if you get an unusually unusual weather pattern,
an unusually warm months, for example, people might spend a
bit on outdoor activity and so on. And that's what
the ABS has really been pointing out in those numbers.
But I don't think that's the key story. I think
the key story here is that there has been tax relief.

(00:51):
Tax cuts have come through, there's been cost of living
relief as well, and household incomes in Australia have gotten
a bit of a boost in July and into August,
and people are starting to spend just a little bit
of that. They're saving some of it, but they're spending
some of it. So I think part of the lift
in the consumer spend, which we're expecting actually will continue
in the coming months and is going to be a
feature of this second half of this year for Australia

(01:13):
is about that relief, is about more income coming their way.
The challenge there, of course, is if demand picks up
in the economy, you get a bit more consumer demand
at a time when inflation is still not as low
as it needs to be, then it means the RBA
isn't able to cut interest rates. So while it's a
positive story because the consumer spending a bit more, it
means that rate relief is still quite a distance away.

Speaker 1 (01:35):
Yeah, it talk to us a bit more about that.
What do you think it means for the inflationary outload.

Speaker 2 (01:39):
Well, we think inflation is going to prove to be
sticky in Australia. We've been saying this all year long. Actually,
we don't think the RBA is going to be cutting
interest rates this year, and we thought that the rate
cuts are probably not coming through till twenty twenty five,
and that's been out of view consistently, and the numbers
are playing out that way. So it's a combination of
two things. It's both the demand is still holding up,
as we talked about consumers starting to spend a little

(02:00):
bit more because there's a bit more fiscal stimulus coming through.
But the primary thing is that the supply side of
Australia's economy is really quite poor, is really quite weak.
We've seen productivity that's been quite weak as well. So
that combination is leaving us with a cost base that's
running a bit too quickly and sticky inflation. The RBA
isn't I don't think then. I don't think they're going

(02:20):
to be able to cut interest rates until well into
twenty twenty five.

Speaker 1 (02:23):
That's interesting. So what are you making of the chances
of a big cut to the cash right here next week?

Speaker 2 (02:28):
Well, I think there are options here. I think the
RBNZ is going to cut and I guess there are
options to cut twenty five or cut fifty, and we'll
have to see what they decide to do. I mean,
keep in mind, it was, you know, back in August
when they cut they'd told us in May, just in
May prior to that that they didn't think they were
cutting until well into next year, and they thought there
was a possibility might list break from someone. It's actually

(02:51):
really quite difficult to read the RBNZ at the moment
in terms of the way they are likely to respond
to the data. But what we know is the economy
is weak. GDP is week growth this week, and we
know there are science and inflations coming down too. So
I think we can fairly confidently say the arbiens it's
going to deliver another cut next week.

Speaker 1 (03:08):
Yeah right, I can't, but twenty five point fifty basis
points anyone's guess at the stage.

Speaker 2 (03:13):
It's tricky. It's difficult to know because, as I say,
it hasn't been that clear exactly what data they're following
in terms of how they're reacting.

Speaker 1 (03:21):
Okay, hey, thanks for time, Paul, appreciate it as always,
HSBC Chief Economist. For more from Hither Duplessy Alan Drive,
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