Economists predict drop in retail spending as household budgets squeezed

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The latest retail sales figures are expected out this week and ANZ Bank senior economist Miles Workman says a drop in retail spending is what the Reserve Bank is hoping for.
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Third quarter retail trade figures are expected to reflect a difficult period for consumers, retailers and the economy.

Stats NZ is expected to release the latest retail sales data at the end of the week, with economists forecasting a further drop in overall spending.

The volume of seasonally adjusted second quarter retail sales fell 1 percent from the March quarter, with the value of sales down slightly by 0.2 percent.

Westpac senior economist Satish Ranchhod was forecasting a 2 percent drop in third quarter retail spending, with core retail spending – which excluded fuel and motor vehicle costs – likely to see a more moderate drop.

“We’re seeing pressures on household budgets on two big fronts. First, inflation is still quite high. That’s eroding the spending power. We’ve also seen big increases in interest costs; that’s constraining their ability to spend,” Ranchhod said.

“I think the upcoming spending figures will reinforce what is a softening picture for the economy. That’s likely to make the Reserve Bank feel more comfortable about keeping the OCR on hold at that upcoming November policy meeting.”

ANZ Bank senior economist Miles Workman said a drop in retail spending was what the Reserve Bank was hoping for.

“They are trying to get households to tighten their belt, because until households are in belt-tightening mode, they are not going to get the downwards pressure on CPI inflation that they’re trying to engineer.”

Workman was forecasting a 0.4 percent quarter-on-quarter drop in the volume of retail sales, with perhaps an increase in values, given the high inflationary environment.

The Reserve Bank was targeting annual inflation of between 1 and 3 percent, which compared with the September quarter’s annual inflation of rate of 5.6 percent.