Yesterday’s disappointing retail sales data, which registered a -0.2% fall in retail sales in December – the third consecutive monthly decline – is arguably further confirmation that the -1.75% of cuts to official interest rates since November 2011 is failing to gain traction.
After bottoming through 2010 to 2011, retail sales rebounded mid last year on the back of one-off compensation payments for the introduction of the carbon tax. Since then, however, retail sales growth has been in decline, with annual growth slipping to just 2.3% in dollar terms (see below chart) and 2.6% in volume terms.
Not surprisingly, this ‘rebound’ in retail sales following interest rate cuts is also weak from a historical perspective. The next chart shows the growth of retail sales following the past five rate-cutting cycles, specifically those beginning in: 1990; 1996; 2001; 2008 and 2011 (the current cycle).
As you can see, the growth of retail sales after rates were first cut in November 2011 is the weakest of the five interest-rate cutting cycles.
The situation is shown more clearly in the next chart, which tracks the current cycle’s sales growth against the average of the other four rate-cutting cycles, and reveals sales growth -4.2% lower this time around at the same stage of the cycle: