Retail falls flat as rate pain kicks in

Retail sales growth flat-lined in January, the first sign yet that recent successive interest rate rises is causing shoppers to put their wallets back in their pockets.

But the downturn in retailers’ fortunes in January is unlikely to stop the Reserve Bank of Australia from announcing a further hike in rates this afternoon.

Retail sales stayed flat in seasonally adjusted terms in January after increases of 0.8% in November and 0.4% December 2007.

The result is well below market forecasts of a 0.5% rise, but follows recent surveys that suggest consumer confidence has tumbled in the past two months.

The drop in retail sales was not uniform across all states, with sales in Victoria increasing by 1% and in South Australia by 1.5%, even as they dropped by 1.2% in Queensland and 1% in Tasmania.

Some retail sectors also faired better than others, with hospitality dropping 0.6%, food 0.4% and household goods 0.5%, but recreational goods were up 3.4% and department stores by 1.8%. This suggests that different groups in the economy are feeling the pain differently.

While the data is unlikely to feed into the RBA’s interest rate deliberations today, it could be significant in determining whether we get another rate rise in April or May, especially if it marks the beginning of a sustained period of lower consumer demand.

The influence of another consequence of higher rates and the strong Australian dollar can be seen in balance of payment data released today. The trade deficit topped $6 billion in the fourth quarter of 2007, with export volumes down 0.6% and import volumes up a big 3.6%.

On the markets today, at 12.55pm the S&P/ASX200 is down 0.7% on yesterday’s close to 5367.7, defying expectations of a bounce after yesterday’s 3% hammering.

And the Australian dollar was trading at US93.67c, up on yesterday’s US93.38c close.

And stay tuned to SmartCompany to find out if mortgagees will be hit with another interest rate rise this afternoon – we will publish an update as soon as the decision is released today.