Retail sales unchanged in August

Figures out today showing retail sales unchanged in August have left economists split on whether the Reserve Bank will raise official interest rates later this month.

The Statistics New Zealand (SNZ) data putting seasonally adjusted retail sales for August at the same level as for July, were bang on economists' predictions.

Sales for the core retailing group fell 0.6 per cent ($21 million) in August, with motor vehicle retailing the subgroup recording the highest rise for the month, up 3.7 per cent ($24m) influenced by steady new vehicle sales.

Actual retail sales for the year were up 2.9 per cent, higher than the 2.4 per cent median prediction in a Reuters poll of economists.

ANZ bank said it continued to expect the Reserve Bank to lift the Official Cash Rate on its next review date of October 26.

Weakness in core retail spending during August would provide scant comfort for the Reserve Bank, ANZ said.

While the annual pace of total retail spending growth remained unchanged in August at 2.9 per cent, it had accelerated to 5.8 per cent for the motor vehicle retailing-excluded core retail sales. That was higher than the Reserve Bank would like.

Furthermore, the Reserve Bank would be looking to keep some policy traction through the roll-over of fixed rate mortgages coming up for renewal in the months ahead.

Deutsche Bank was noncommittal, saying it remained to be seen whether remaining data ahead of the OCR review would give the Reserve Bank the luxury of holding the rate steady.

A near 12 per cent decline in average petrol prices during September could give core retail sales a sizeable boost, implying stronger sales volumes in the lead-up to Christmas.

The dilemma for the Reserve Bank was whether a pick-up in spending during the past three months was "merely a wiggle" around the medium-term trend or whether consumer spending growth might really be picking up just a little, Deutsche Bank said.

BNZ said the August retail sales figures provided no upside surprise and would not push the Reserve Bank toward hiking again this month.

That said, BNZ suspected economic news in the coming weeks and months would keep the heat on the Reserve Bank.

Petrol prices hit extremes in August, and the fact consumer spending apparently held together during the heights of the petrol price squeeze pointed to an underlying robustness.

The bigger issue was whether household demand would flatten going into 2007. If it did not, the Reserve Bank would have no option but to raise rates.

Citigroup economic and market analysis director Annette Beacher said that given the fall in petrol prices the Reserve Bank would be even more comfortable holding the cash rate steady this month.

Apart from motor vehicle retailing, the hospitality industries - including cafes and restaurants, bars and clubs, and accommodation - were the only other group to record a seasonally adjusted rise in sales of over $10m for August, SNZ said.

Sales for the three industries recorded an increase of 2.5 per cent ($15m).

Falling sales were more widespread with the largest dollar-value decreases being in recreational goods retailing, down 7.5 per cent ($15m), and department stores which were down 3.9 per cent ($12m).

While the total retail sales trend had continued to increase since May 1998, the rate of increase had eased in the past year, reducing to a monthly average of 0.3 per cent since July 2005.

That compared with an average increase of 0.6 per cent between May 2003 and July 2005, SNZ said.

- NZPA