Retail sales continue to decline, inflation rate reaches 3.5%

Prices are falling in other sectors. Over the past year, the cost of milk, ice cream and cheese has fallen by 0.2%. At the beginning of 2023, these prices were up nearly 16%.

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Signs of a weaker consumer environment included a 3.1 percent drop in women’s shoe prices, while apparel prices rose less than expected.

The good news for the Reserve Bank is that underlying inflation has begun to ease, with commodity price increases at their slowest pace in three years. Some economists believe headline inflation could fall below 3 per cent by the end of the year.

But pricing pressures remain.

Housing costs rose 4% in the 12 months through July, down from 5.5% in June. Rents rose 6.9% from a year ago, down from a 7.1% annual rate in June.

Tobacco prices have risen 13.9% in the past 12 months, driven by government excise taxes.

Poor growing conditions for staple fruits and vegetables such as strawberries, grapes and broccoli affected supermarkets, with annual inflation jumping from 3.6 per cent to 7.5 per cent.

Commonwealth Bank economist Stephen Wu said deflationary pressures were now spreading, and not just because of government intervention.

“The number of items in the CPI basket with annual inflation below 2 per cent has continued to rise and now exceeds the number of items with price increases exceeding the RBA’s inflation target band, which continues to decline,” he said.

“Core inflation measures also eased this month. In other words, deflation is not entirely due to government tax rebates. That’s good news.”

But it’s bad news for the retail sector, which has borne the brunt of rising inflation and interest rate hikes by the central bank to curb price pressures.

David Rumbens, partner at Deloitte Access Economics, said in releasing its latest retail outlook report that Australia’s retail sector has been in decline for the past 18 months.

Per capita spending has been falling for the past two years and is now 2.5% lower than in June last year and 6.3% lower than in mid-2022. The rest of the year will be tough, but inflation is likely to ease further, which would help boost retail spending next year and in 2026, he said.

“The period between now and Christmas will still be tough for retailers, but it may not be as tough as it was before,” he said.

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“Strict cost control and regular discounting remain our motto. As retailers’ willingness to hire declines, they are further exploring technology investments to improve efficiency.”

It’s not just the retail industry that continues to struggle.

Data released by the bureau on Wednesday showed the value of dwelling completions nationwide fell 0.1 per cent year-on-year to 2.9 per cent in the three months to June.

The decline will have a negative impact on national accounts data due next week, which are expected to show the economy grew by just 0.3% in the June quarter. That compares with growth of just 0.1% in the first three months of the year.

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