Australia's low inflation weighing on nominal but boosting real retail sales

Australia's nominal retail sales are expected to continue to expand at a slightly below-average rate of 0.4% mom in September, supported by solid employment growth of 2% and nominal wage growth around 2¼%. Retail spending is also benefiting from strong wealth effects coming from large gains in residential property prices. Furthermore, rising numbers of tourist arrivals are also boosting retail sales (especially for the catering industry) and are one factor helping to explain why retail sales have been outpacing private consumption growth. 

Retail sales growth in volume terms, meanwhile, is expected to have been solidly in line with its long-run averages, thanks in large part to very low inflation. Indeed, food and non-alcoholic beverage prices practically stagnated (0.1% qoq, and flat in seasonally adjusted terms) and those of apparel dropped outright (-1.1% qoq, -1.6% qoq seasonally adjusted). 

As regards food prices this is driven by weak agricultural prices worldwide, weaker energy and thus transportation costs as well as intense competition. The decline in apparel costs is more difficult to explain, especially given the weak Australian dollar, but may also be a result of intense competition. Be that as it may, a gain of 0.9% qoq would point to solid expansion in private consumption growth in Q3.