Australian Retail Sales Rise for the Second Month: Will the Rise Continue?

Retail sales in Australia rose 0.6% from A$16,447 million in January to A$16,551 million in February. This was the second month of increase after three successive months of decline, however, the level of sales failed to reach the June 2004 peak of A$16,670 million. Doubts of further increases have risen as a result of the sharp decline in consumer confidence that took place in March. The confidence index tumbled almost 17% from 122.8 to 102.4, the lowest level since March, 2003. While the confidence measure is more volatile than that of retail sales, it seems to be a good indicator of the trend in retail sales as shown in the first chart.

Part of the fall in confidence may have resulted from the Australian Federal Reserve Bank's action in raising its overnight cash rate target from 5.0% to 5.5% on March 2, the first move in 15 months. The Bank noted that the economy, after 13 years of expansion, had less capacity to grow without engendering price increases.Data on official measures of consumer and producer prices in Australia are reported only quarterly. Producer prices for manufacturing accelerated strongly and while the pace of rise was smaller, consumer prices also accelerated in 2004 as shown in the second chart. First quarter data, available soon, may determine whether another rise in the overnight cash target rate is imminent.