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Consumers shell-shocked from interest rate hikes

20 May 2010: Australian retail sales remained relatively flat over the month of February, according to the latest Commonwealth Bank Business Sales Indicator (BSI)(i).

Australian retail sales lifted modestly over the month of April, according to the latest Commonwealth Bank Business Sales Indicator (BSI)(i). 

The BSI, which tracks the value of credit and debit card transactions processed through Commonwealth Bank point-of-sale terminals, rose by 0.2 per cent (in trend terms) in April. In annual growth terms, the BSI slowed to 4.6 per cent in April, which was the slowest growth pace in eight months. 

According to Executive General Manager of Local Business Banking at the Commonwealth Bank, Symon Brewis-Weston, the sluggish retail figures indicate that consumers and businesses are a little shell-shocked from the constant increases in interest rates. 

“Spending is growing, but very modestly. It’s further evidence that consumers are being impacted by increases in interest rates, preferring to play it safe when it comes to opening their wallets. 

“It’s interesting to note the trends appearing through the seasonally adjusted figures, which show a zigzag sequence, which suggests a change to normal pattern of spending. It appears that businesses are being prompted by the conservativeness of consumers to hold sales at a different time of the year than usual. So one month spending is up, but once the discounts end spending eases the next month.” 

Craig James, Chief Economist of the Bank’s broking subsidiary CommSec and author of the BSI, said the latest data once again supports the case for interest rates to stay on hold when the Board of the Reserve Bank of Australia meets in June. 

"We’re predicting that interest rates will be kept on hold in June. This is supported by the latest spending data, which indicates that now would be a good time for the Reserve Bank to take a rest in its rate hiking cycle as consumers are feeling the pinch of recent rate hikes."

Industry analysis – consumers responsive to discounts

Of the 20 industries tracked in the BSI, spending was strongest in the mail order and telephone order providers industry, increasing 1.1 per cent over the month of April (in trend terms), followed by amusement and entertainment.

STRONGEST INDUSTRIES

+ 1.1%

Mail order/Telephone order providers

+ 0.8%

Amusement and entertainment

+ 0.7%

Repair services/service providers


According to Mr James, the conservativeness of consumers is highlighted by the industry data. 

"Sales in the mail and telephone order sectors appear to be doing well because consumers are responsive to discounts. And repair services appear to be enjoying solid growth because consumers are choosing to repair rather than replace."

State/Territory Analysis – spending in Northern Territory strongest

The BSI found that only five of the eight states and territories recorded a lift in sales in April, a fall from last month when all states and territories recorded positive growth. Spending was strongest in the Northern Territory, recording a lift of 0.8 per cent, followed by the Australian Capital Territory and South Australia (both up 0.2 per cent).

Mr James added, spending in the Northern Territory is being well supported by a strong jobs market.

“Sales have been boosted in the top-end thanks to unemployment levels being the lowest in the country. The sharp lift in house prices over the past year also has lifted wealth levels, and in turn, spending through the Territory.”

- ENDS -

Contact:

Kate Powditch
Commonwealth Bank
Phone: (02) 9118 1667
Email: Kathryn.powditch@cba.com.au

i. About the Commonwealth Bank Business Sales Indicator

  • The Business Sales Indicator is calculated by tracking credit and debit card transactions processed through Commonwealth Bank merchant facilities throughout Australia (approximately 30 – 40 per cent of market).
  • The Business Sales Indicator has been devised to provide a monthly assessment of spending trends in the Australian economy and is available to the public on the Bank’s website and to the media on or around the 20th day of each month.
  • Currently, the main monthly indicator of spending in the economy is the Australian Bureau of Statistics’ (ABS) Retail Trade release. The main quarterly indicator of spending in the economy is the ABS Household Final Consumption Expenditure (HFCE). A quarterly measure of the Business Sales Indicator has closely tracked the ABS household consumption series over the past three years, highlighting the value of the Business Sales Indicator to track changes in spending across the economy. The Business Sales Indicator is available monthly; broader household consumption figures are only available from the ABS on a quarterly basis.
  • The Business Sales Indicator includes industry sectors based on international Merchant Category Code (MCC) categories.

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