Australian Retail Sales Stagnated in June on Rates

By Jacob Greber

July 30 (Bloomberg) -- Australian retail sales probably stagnated in June as the highest borrowing costs in 12 years and rising gasoline prices prompted consumers to reign in spending.

Sales were unchanged from May, when they rose 0.7 percent, according to the median estimate of 24 economists surveyed by Bloomberg News. The Bureau of Statistics releases the report at 11:30 a.m. in Sydney tomorrow.

Consumers are being buffeted by gasoline costs that surged to a record earlier this month, rising food prices and the central bank's decision to raise its benchmark interest rate in March to 7.25 percent, the highest since 1996. There is ``pretty clear evidence'' consumers are cutting spending, Reserve Bank of Australia Governor Glenn Stevens said on July 16.

``Consumers still face significant headwinds,'' said Stephen Walters, senior economist at JPMorgan Chase & Co. in Sydney. ``Discretionary spending is likely to be particularly weak as higher borrowing costs and rising living costs eat away at households' disposable incomes.''

Harvey Norman Holdings Ltd., Australia's largest furniture and electronics retailer, said yesterday sales growth slowed to 8.7 percent in the year through June from 16.5 percent in the previous 12 months as demand for furniture and household appliances eased.

Consumer Confidence

Central bank policy makers raised borrowing costs in March, February, November and August in a bid to slow inflation that has accelerated to 4.5 percent. The bank aims to keep annual price gains between 2 percent and 3 percent.

Interest rates are ``exerting the appropriate degree of restraint'' on the economy, which has been expanding for 17 years, policy makers said in minutes of their July 1 meeting, when they left the key rate unchanged for a fourth month.

Consumer confidence slumped in July to the lowest level in 16 years, businesses in June were the most pessimistic since 2001 and home-loan approvals fell in May by the most in eight years, reports showed this month.

Home-building approvals unexpectedly fell in June for a second month, a government report showed today. The number of permits granted to build or renovate houses and apartments dropped 0.7 percent from May, when they declined a revised 7.2 percent.

Inflation Relief

``It looks more likely now than it did a couple of months ago that this more moderate track for demand will continue,'' Stevens said on July 16. That will ``in due course begin to exert downward'' pressure on inflation, he said.

Investors have increased bets this month that the central bank will cut interest rates, according to a Credit Suisse Group index based on trading in interest-rate swaps. Traders expect Stevens will lower the benchmark rate by 32 basis points, or 0.32 percentage points, in the next 12 months. At the start of this month, they forecast 19 basis points of gains.

Retail sales, adjusted to remove inflation, probably fell 0.1 percent in the three months through June from the previous quarter, economists forecast.

That would mean second-quarter gross domestic product ``was weak,'' said JPMorgan's Walters. The economy expanded in the first quarter at the slowest pace in almost two years.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net