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SYDNEY - Australia's retail sales were surprisingly weak in September and for the third quarter, suggesting higher interest rates may be biting harder on consumers than thought before.
Other government data out yesterday showed Australia's trade deficit widened in September, but implied exports would still add to economic growth for the first time in five years.
Retail sales rose just 0.1 per cent in September, as consumers spent less at department stores. In the third quarter, inflation adjusted sales rose 0.4 per cent, below a 0.6 per cent forecast.
Retail sales matter because "retail makes up almost 25 per cent of the economy," said Brian Redican, a senior economist at Macquarie Bank.
"With two soft months in a row, it also implies consumption got off to a slow start in [the fourth quarter]."
Yet, the numbers were not dire enough to alter market expectations that the Reserve Bank of Australia (RBA) would raise interest rates to 6.25 per cent next week.
"This doesn't change the likelihood of a rate hike next week, but if sales stay this weak it will certainly get the attention of the RBA," added Redican.
Investors reacted by trimming some of the Australian dollar's sharp gains of the past week, and bond futures edged higher as investors modified their long-term rate views.
Exports fell 1 per cent while imports held steady. The trade deficit widened to A$646 million ($753 million), from a revised A$324 million in August, when analysts had looked for an A$200 million shortfall.
The deficit for the third quarter dropped by A$2 billion compared to the previous quarter, to A$1.271 billion, implying that trade added to gross domestic product growth in the quarter, a big turnaround from the second quarter when it subtracted 0.2 per cent.
- REUTERS
