Rate rises haven’t turned us off our daily coffee

Interest rate rises have failed to dent demand for morning coffees, lunchtime sandwiches and evening takeaway, boosting chances the Reserve Bank will continue to tighten monetary policy to bring inflation under control.

Sales through cafes, restaurants and the takeaway sector bounced 1.8 per cent in July to a record $5 billion, up 46 per cent on a year ago, Australian Bureau of Statistics data showed on Monday.

Retail sales nationally lifted 1.3 per cent to $34.7 billion last month, even as the RBA raised official interest rates by half a percentage point.

Total retail turnover was 16.5 per cent higher over the 12 months to July, with consumers in NSW (up 23.5 per cent) and Victoria (16.9 per cent) leading the national charge to shopping malls and corner shops.

But there are signs the RBA’s rate increases, coupled with inflation, are starting to hit parts of the retail sector. Sales of household goods dropped by 1.1 per cent in July. It was the third fall in four months, with total turnover back to where it was in January.

Financial markets have put the chance of a half percentage point increase at better than 80 per cent when the RBA board meets next week. It would be the fourth consecutive 0.5 percentage point lift, taking the official cash rate to 2.35 per cent.

The bank has aggressively lifted interest rates to deal with inflation that it expects to reach almost 8 per cent by year’s end.

CreditorWatch chief economist Anneke Thompson said in the years before COVID-19, retail sales turnover lifted by about 0.2 per cent a month. So far this year, it has increased by almost 1.3 per cent.

“A portion of this will be attributable to rising prices, but still, there appears to be a lot of ‘catch-up’ spending underway by consumers, especially in the clothing, footwear and personal accessories and department store sectors,” she said.

ANZ senior economist Adelaide Timbrell said one of the factors supporting the retail sector was the gradual return of tourists and expatriate Australians.

A net 110,600 people entered the country in July compared to a net exodus of 150,500 people in June.

Timbrell said net overseas arrivals would continue to support retail, playing down concerns the sector was about to suffer a sharp fall.

“We expect a consumer slowdown eventually, and ANZ-observed spending shows slightly slower momentum in spending in August compared to ‘normal’ seasonal variation, but we are far from observing a cliff in spending yet,” she said.

But Commonwealth Bank senior economist Belinda Allen cautioned the lift in July largely occurred before consumers started to feel the full impact of that month’s interest rate increase.

“At the Commonwealth Bank, for example, there is on average a three-month delay between an increase in the cash rate and the higher repayment being deducted from a customer’s bank account,” she said.

“Between August and December, this interest rate impact quadruples based on the already announced policy changes. This impact will lift again depending on what the RBA does to the cash rate in September and beyond.”

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