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Job vacancies, spending data divide markets

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By Charbel Kadib
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3 minute read

The latest retail sales and job vacancy prints have cast further uncertainty over the Reserve Bank’s upcoming monetary policy decision.

Retail sales rose 0.7 per cent in May, well beyond market projections of a modest 0.1 per cent uptick, according to the Australian Bureau of Statistics (ABS).

In value terms, retailers raked in $35.5 billion in May, up slightly from $35.2 billion in April.

Ben Dorber, ABS head of retail statistics, said the May sales bump was driven by a rise in spending on food and discretionary goods.

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“This latest rise reflected some resilience in spending with consumers taking advantage of larger than usual promotional activity and sales events for May,” he said.

The retail sales figures coincided with the release of the latest job vacancies data, which reported a 2 per cent decrease in May to approximately 431,600.

The sharper-than-expected uptick in retail sales and the decline in job vacancies are expected to complicate the Reserve Bank of Australia’s (RBA) monetary policy assessment next week, given yesterday’s (28 June) surprise print for the monthly consumer price index (CPI).

Headline inflation eased to 5.6 per cent, 0.5 percentage points lower than market projections of 6.1 per cent.

According to ANZ Research, the CPI surprise would not be enough to halt the RBA’s monetary policy tightening cycle.

The group acknowledged the bump in retail spending would not spark a rebound but said when combined with resilience in the labour market, the result may “outweigh” evidence of faster than expected disinflation.

“The latest retail sales and job vacancies data support the case for the RBA to hike 25 bp in July,” ANZ Research observed.

“Retail sales posed its strongest gain since January, and there are still more than 430,000 job vacancies in Australia.”

However, the Commonwealth Bank’s reaction to the retail sales and job vacancy prints was less hawkish, with the bank claiming it increases the likelihood of a rate pause in July.

CBA noted while retail sales growth was “solid”, it is underpinned by a “much softer” consumer context and may prelude weaker spending in the coming months.

Meanwhile, the dip in job vacancies points to “elevated but easing labour demand”.

“Given the above, we do not believe today’s figures will have a material impact on the RBA’s thinking for the July board meeting, with inflation figures taking priority,” CBA observed.

“While it will be a close call, we anticipate the RBA will leave the cash rate steady at 4.1 per cent before delivering a final 25 bp hike to 4.35 per cent in August.”

The RBA’s next monetary policy board meeting is scheduled for Tuesday, 4 July.

Minutes from the June meeting revealed the RBA’s decision to hike was “finely balanced”.

According to Robert Carnell, regional head of Asia-Pacific research at ING Economics, May’s “dramatic” CPI result should all but lock in a pause.

“If the June Reserve Bank of Australia rate decision was a finely balanced one, pushed over the edge by a spike in April’s inflation to 6.8 per cent, then by the same logic, the plunge in inflation in May should result in a ‘hold’ decision in July,” he observed.

Job vacancies, spending data divide markets

The latest retail sales and job vacancy prints have cast further uncertainty over the Reserve Bank’s upcoming monetary policy decision.

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