MNI BRIEF: RBA Set To Hike Despite Slide In Dec Retail Sales
The Reserve Bank of Australia's inflation fighting focus is unlikely to deter it from hiking again despite December retail sales recording the fourth largest month-on-month decline, snapping a run of 11 consecutive monthly increases, market pricing suggests
While the advent of Black Friday online sales in November has delivered negative month-on-month prints in the previous three Decembers, the magnitude of the 3.9% m/m decline, as reported by the Australian Bureau of Statistics, suggests households are beginning to tighten their belts after the RBA hiked by a cumulative 300bp since May. The only larger month-on-month declines were recorded in the Covid-affected months of April and August 2020, and July 2000, a month after the introduction of the 10% Goods and Services Tax. Retail sales were up 7.5% through the year.
A hotter-than-expected Q4 Consumer Price Index print of 7.8% y/y has overnight indexed swaps pricing in a 25bp hike to 3.35% at the February 7 meeting. However, the soft retail sales print prompted a paring of OIS pricing for the March and April meetings, with another 25bp hike priced in for the May 2 meeting. OIS are pricing in a terminal rate of 3.7% from mid-2023.
The RBA has highlighted household spending behaviour as a risk to keeping the economy on an "even keel" as it seeks to return inflation back to its 2-3% target. Households confront not only higher prices and depressed real wages, many homeowners will have to endure a significant increase in mortgage payments as more than AUD400 billion of fixed rate mortgages are set to expire this year. (See MNI POLICY: RBA Sees Savings, Jobs Cushioning Mortgage Stress)