Spending rise reflects confidence

Reserve Bank Governor Graeme Wheele. Photo / Mark Mitchell

Economists believe Reserve Bank unlikely to be rattled by last month's 0.5 per cent increase in card transactions.

Consumer spending keeps rising steadily but not at a pace economists believe would unnerve the Reserve Bank. Electronic card transactions in the retail sector rose a seasonally adjusted 0.5 per cent last month, Statistics New Zealand reports.

The rise, reported yesterday, came on top of a brisk 0.8 per cent increase in April and pushed spending to a level 4.8 per cent up on May last year.

The figures capture spending paid for by way of debit, credit and charge cards, but not cash, cheques or hire purchase. They cover around two-thirds of retail spending.

Last month's rise was led by automotive fuels, up 3.8 per cent to be 7.7 per cent ahead of a year ago.

"We calculate that the increase was driven almost entirely by volumes - a consistent and notable development over the last year, and one that is likely to coincide with a pickup in general economic activity," said Westpac economist Michael Gordon.

Spending on consumables, which include food, rebounded, rising 1.1 per cent after falling 1.6 per cent in April.

For the third month in a row the hospitality sector enjoyed a notable rise in sales, up 1.6 per cent for the month and 7.9 per cent for the year.

"Spending in this category has been boosted this year by higher consumer confidence and strong overseas visitor numbers," said ASB economist Daniel Smith.

Spending on durables, such as furniture and appliances, slipped 0.4 per cent but that followed a very strong 3.3 per cent rise in April and it is still 7.9 per cent up on May last year.

Smith said high spending on durables was supported by increased housing market activity and was another sign of consumer confidence.

Confidence had improved late last year and early this year and that had coincided with a turnaround in net migration flows, he said.

"Further increases in house prices have the potential to spur greater growth in consumption, but the available evidence suggests that households retain some caution, possibly a symptom of high household debt levels and a relatively soft labour market," Smith said.

Deutsche Bank chief economist Darren Gibbs said that for now consumer spending, as reflected in card transactions, was growing broadly in line with labour incomes, as measured by the Quarterly Employment Survey, and less enthusiastically than might have been expected given the rapid rise in house prices, especially in Auckland.

"The Reserve Bank will be hoping that this remains the case over coming months," Gibbs said.

Smith said that despite steady growth in retail sales, consumer price inflation had been very subdued over the past few years, in large part because of the strong Kiwi dollar.

"While the currency has backed off from its recent highs, we do expect it to remain reasonably high by historical standards over the next 12 months."

He said retail inflation was therefore likely to remain low.