Consumers rattled by cash rate increase and rampant inflation

Consumer sentiment declined for a seventh consecutive month, falling a further 4.5% to 86.4 in June 2022, as rate hikes and inflationary pressures continued to increase cost of living pressures on consumers. The most recently published ABS retail sales (April) showed a seasonally adjusted increase of 0.9%, while online retail sales deteriorated for a third consecutive month, declining by 1.3% (seasonally adjusted). Consumer discretionary spending is anticipated to slow in the coming months as cost-of-living concerns escalate and consumer risk aversion intensifies, compounding pressures on retailers who are already facing increasing costs and supply chain disruptions.

Consumer confidence

• 1 month - (4.5%)

• 12 months - (19.5%)

Source: Westpac – Melbourne Institute Consumer Sentiment Index

Consumer sentiment declined materially in June 2022, falling by a further 4.5% to 86.4 according to the Westpac-Melbourne Institute Index of Consumer Sentiment. The survey was conducted shortly after the RBA announced a second cash rate rise of 0.5bp, the largest one-off interest rate hike in 22 years and just one month after the RBA lifted rates by 0.35bp. The decline represents the seventh consecutive monthly decline with cumulative reductions of 17.9% since November 2021 and 27.3% since the high point in April 2021. Sentiment is being weighed down by ongoing inflation fears on top of the immediate impact of inflation and interest rate increases on the hip pocket. Consumer sentiment is at its lowest level since the first COVID wave in April 2020 (75.6) and is not far off the level seen during the Global Financial Crisis (79.0).

Retail sales

• 1 month - 0.9%

• 12 months - 9.6%

Source: Australian Bureau of Statistics

The recently released ABS retail sales data for April 2022 shows continued growth in consumer spending despite the pessimism, recording seasonally adjusted growth of 0.9%. April 2022 sales were $2.96 billion higher than April 2021 sales (+9.5% vs April 2021, +36.8% vs April 2020 during the COVID impacted period). The strength in retail sales was driven by strong improvements in food retailing and cafes, restaurants and takeaway food services, reinforcing the trend we have seen around reallocation to leisure and services based categories, with discretionary tangible sectors remaining under a level of pressure. Sales data increased in all states, excluding New South Wales (-0.3%), following the state’s strong result in March 2022 (+1.8). Inflation is likely playing a part on the data/growth.

Online retail sales

• 1 month - (1.3%)

• 12 months - 15.2%

Source: NAB Online Retail Sales Index

Online retail sales recorded a third consecutive month of decline in April 2022 (-1.3%, seasonally adjusted), however remained significantly up in year-on-year terms (+15.2% v April 2021). Department stores and grocery and liquor recorded growth, while homewares and appliances recorded a strong contraction. Online retail sales are estimated to represent 15.1% of retail sales reported by the ABS during the twelve months to April 2022 ($56.89 billion) and are 19.6% higher than the 12 months to April 2021.