Australian retailers recorded their best month of sales in nearly a year as consumers splashed out on everything from dining out to clothing, taking advantage of the easing of protracted lockdowns and building momentum in the economy for the final quarter.
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In October, sales increased by 4.9% from a month earlier, when they rose 1.3%, and more than doubled the economists forecast of a 2.2% gain, Australian Bureau of Statistics data showed Friday. Australians coming out of lockdown have been hitting the pavement, ditching loungewear, refreshing their wardrobe and going out to enjoy cafes and restaurants, said Jo Masters, chief economist at Ernst Young LLP. Consumer spending, combined with high job vacancies and firms boosting investment intentions, helps explain why markets believe that the Reserve Bank's first interest rate increase is only a matter of months away. The cash rate is expected to be 0.25% in May, and then there are two more quarter-point increases over the rest of 2022 as traders are pricing in an initial 15 basis-point hike.
The central bank is optimistic about the outlook for the A $2 trillion $1.4 trillion economy, and predicts a brisk 5.5% expansion next year. It sees price pressures taking longer to build, with core inflation expected to reach the 2.5% midpoint of the RBA's target in late 2023.
That is one of the reasons why Governor Philip Lowe has dismissed aggressive market pricing and signaled that the tightening cycle will only begin in about two years time.
Andrew Ticehurst, a rates strategist at Nomura Holdings Inc. in Sydney, says it looks like a rebound is coming in the fourth quarter. He stated that the first rate hike will occur in November 2022, while bringing forward his expectations on the timing of the central bank ending quantitative easing to May from August previously.
The bond buying program will be reviewed at the Feb. 1 meeting of the RBA, which currently runs at A $4 billion a week.
Some economists think the bank will scrap the program in February, particularly with the Federal Reserve expected to resume scaling back its asset purchases at a faster pace as it contends with escalating U.S. inflation.
None Clothing, footwear and personal accessory retailing soared 27.7% and cafes restaurants and takeaway food services jumped 12.3%.
Food retailing was the only industry that fell 0.5%, a decline of 0.5%.
None of the sales in New South Wales recovered strongly, surging 13.3%, Victoria climbed 3% and the ACT jumped 20.2%.
Consumer spending accounts for a little over half of Australia's annual economic output and is an important indicator for policy makers.
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