Inflation, floods and the invasion of the Ukraine weigh on consumers

Consumer sentiment fell by 4.2% in March 2022, as concerns about the rising cost of living and the prospect of increased inflation rates were compounded by the recent flooding event on the Eastern Seaboard and Russia’s invasion of Ukraine.

Prior to these major developments, traditional and online retail sales increased by 1.8% and 7.2% respectively in January 2022 (compared to December 2021) as Omicron restrictions started to ease. With consumers’ share of wallet already shifting away from retail post-lockdown, retailers face a challenging environment in the coming months as consumers pull back on spending in light of the current market uncertainty.

Consumer confidence

• 1 month - (4.2%)

• 3 months - (5.5%)

• 12 months - (18.7%)

Source: Westpac – Melbourne Institute Consumer Sentiment Index

Westpac’s consumer sentiment index has fallen below 100 into ‘pessimistic’ territory, the first time since September 2020. The 4.2% fall to 96.6 in March 2022 continues the deteriorating sentiment over the last four months. The significant decline was recorded against a backdrop of a number of key disruptors, including Russia’s invasion of Ukraine, the flooding event on the Eastern Seaboard and continuing inflationary pressure. While confidence fell across all states and territories, the flood affected states experienced the largest declines (Queensland in particular which declined 11.2%). The complementary survey measures also provide some insight into factors potentially contributing to sentiment, with the measure relating to ‘time to buy a dwelling’ index (78.3) reaching its lowest level recorded since February 2008 during the Global Financial Crisis, reflecting concerns around the residential property market and potential interest rates movements. Looking forward, retailers face headwinds on revenue and considerable cost uncertainty driven by supply chain pressure and labour shortages.

Retail sales

• 1 month - 1.8%

• 3 months - 4.7%

• 12 months - 6.7%

Source: Australian Bureau of Statistics

ABS retail sales in January 2022 improved by 1.8% on a seasonally adjusted basis, rebounding from the 4.4% fall recorded in December 2021. January sales were $1.95 billion higher in January 2022 than January 2021 (+6.4% vs January 2021, +17.7% vs January 2020). Sales improved in all states, with Victoria (2.5%), South Australia (3.1%) and Western Australia (4.7%) growing at a faster rate than the national average.

Online retail sales

• 1 month - 7.2%

• 3 months - 2.4%

• 12 months - 22.8%

Source: NAB Online Retail Sales Index

Online retail sales recorded a strong seasonally adjusted increase of 7.2% in January 2022, offsetting some of the declines reported in the last quarter of 2021 (December (3.7%), November (1.1%) and October (5.7%)). Online sales for the twelve months to January 2022 equated to 14.7% of traditional retail sales during that period as measured by the ABS (equivalent to $54 billion, which was c.20% higher in dollar terms than the previous corresponding period).