KEY POINTS:
The dollar jumped yesterday on news of a 1.2 per cent increase in retail sales in May - even though the rise only reversed a fall of the same size in April.
The result was stronger than economists had expected in light of the official cash rate increases in the two preceding months.
The financial market took it as having increased the risk of another interest rate rise, although the market still thinks it more likely than not that Reserve Bank Governor Alan Bollard will sit tight on July 26.
Statistics New Zealand said total sales, adjusted for seasonal effects, rose 1.2 per cent to be 6.5 per cent ahead of May last year.
Excluding the volatile automotive sector, the increase was 0.8 per cent, almost reversing April's 0.9 per cent decline.
The news pushed the dollar a third of a cent higher to US78.79c, although it had fallen back to US78.21c by the end of local trading.
Wholesale interest rates are now pricing in a 40 per cent chance of the official cash rate (OCR) rising to 8.25 per cent on July 26, according to Credit Suisse's swaps-based indicator.
But most of the month's increase in sales - $50 million out of $65 million - was concentrated in supermarkets and caryards. Excluding them, the increase was a modest 0.4 percent.
Statistics New Zealand's trend measure, excluding the automotive sector, has been heading steadily lower since the start of the year.
And yesterday's data did not capture any effect from last month's OCR increase.
Supermarket sales have been rising at an average rate of 1.1 per cent a month since the start of the year. Much of that reflects rising prices and, to some extent, would crowd out spending on other things.
ANZ National Bank chief economist Cameron Bagrie said department store sales - a key discretionary spending sector - fell 4.1 per cent in May.
Even so, the Reserve Bank would have been disappointed, he said. "Consumer spending still refuses to roll over."
Bagrie said the strength of car sales - up 4.4 per cent in May and 9.3 per cent on a year ago - and to a lesser extent sales of furniture and floor coverings indicated that households were still confident enough to buy big-ticket items.
Recent consumer confidence surveys pointed to an easing in retail sales over the months ahead.
"However, for the Reserve Bank, the question will be whether they can afford to wait, given the level of inflationary pressures within the economy."
May Sales
* Up 1.2 per cent from the month before.
* Up 6.5 per cent from a year ago. Sales rise food for thought
