KEY POINTS:
The strength of retail sales in January will do nothing to soothe the Reserve Bank's concerns about consumers' spending binge, say economists.
Takings rose 0.5 per cent, when adjusted for seasonal effects, Statistics New Zealand reported yesterday.
And when the highly variable automotive sector was excluded, core retail sales rose 1 per cent. That followed three months of flat sales.
The stand-out increase was a 5.8 per cent rise for department stores. But the statisticians noted that some department stores had shifted their promotions from before to after Christmas. Department store sales were only 3.8 per cent higher than last January, compared with 6.9 per cent for all retailers.
The 0.5 per cent monthly increase in total retail sales was stronger than the 0.3 per cent economists had expected. However, that is largely explained by downward revisions to December's figures for total sales, to 0.5 per cent from 0.7 per cent, and core sales, to zero from 0.2 per cent.
"But on the day the retail data were stronger than expected and given the Reserve Bank's focus on domestic demand can do nothing but add to the risk of another follow-up rate hike in April," UBS economist Robin Clements said.
Bank of New Zealand economist Stephen Toplis said the 0.5 per cent increase in total sales was consistent with slowing household spending.
"On the other hand it continues to highlight the fact that overall domestic demand remains relatively robust, putting upward pressure on both inflation and interest rates."
When he raised the official cash rate last week Reserve Bank Governor Alan Bollard said it was essential that housing and domestic demand cooled or "further tightening may be required".
The markets were yesterday pricing in a 38 per cent probability of a further rise in the official cash rate to 7.75 per cent in April, according to Credit Suisse's swaps-based indicator.
Toplis said he expected the increase in interest rates, along with recent rises in petrol prices, would hit consumer sentiment and contain spending in the June quarter.
But those factors could easily be offset by the second wave of the Government's Working for Families policy, which would inject another $400 million into the economy.
There was very little evidence of the softening in domestic demand that the economy needed and the Reserve Bank desperately sought, Toplis said.
On the contrary, sales of discretionary and interest-rate-sensitive items were strong. For the three months ended January takeaways sales were up 11.4 per cent on a year earlier, hardware sales up 7.4 per cent and appliances up 10.6 per cent.
ANZ National Bank chief economist Cameron Bagrie said the robustness of consumer spending was not surprising given the strength of the labour market.
"Strong wage growth, high job security and steady net migration inflows will continue to provide support for retail spending."
But Bagrie noted an emerging disparity across the regions, with retail sales growth easing in Auckland, flat in Wellington, but stronger in the rural regions, especially Waikato.
"High commodity prices are providing some offset to the rural community from the high currency."
Going up
* Total retail sales were up 0.5 per cent in January.
* Excluding vehicle-related sales the rise was 1 per cent.
* The trend is weaker growth in Auckland, none in Wellington, but robust growth in Waikato.
