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Matthew Hassan, analyst at Westpac, points out that the Australian May retail update showed sales edging up 0.1% in the month but essentially flat over the April-May period.

Key Quotes

“This was a touch below the consensus forecast of a 0.2% gain but in line with Westpac’s view. Annual growth slowed to 2.4%yr, the slowest pace since the start of 2018 and well below the long run average of 4%yr.”

“By category, the main source of weakness in May was basic food retail (-0.3%mth). This category accounts for 40% of total retail. Food price moves have been a significant driver of fluctuations – the latest dip may be a sign that these are easing. Sales ex basic food rose 0.4%mth.”

“Overall the May update is bleak but not bleaker than expected. Retail sales are treading water in nominal terms rather than contracting. As such the wash up for the June quarter volumes that feed into national accounts estimates of consumer spending will depend heavily on what has been happening on the price side.”

“We suspect retail price inflation has slowed significantly from the food price driven gains over the last two quarters. The June quarter CPI update due at the end of the month will be an important pointer on this question and the extent to which growth in consumer demand is slowing.”