As noted earlier today, retail sales figures from the Australian Bureau of Statistics (ABS) revealed a -0.4% fall in the value of retail sales in March, with sales up by 1.6% over the quarter and by 3.2% over the year (see next chart).
However, the ABS also provided quarterly data on the volume of retail sales, which revealed that sales volumes increased by 2.2% over the March quarter and by 3.6% over the year (see next chart).
This suggests that retailers actually cut prices by -0.6% over the quarter, with all key areas of retailing slashing prices except cafes, restaurants & takeaway food (see next chart).
According to Michael Janda from the ABC:
“Annual retail price inflation was just 0.1 per cent. All retail categories except cafes and restaurants recorded outright price declines,” Westpac’s economics team wrote in a note on the data.
“Price deflation is running at –2 per cent for the year for clothing soft good retailers, household good retailers and –3 per cent for the year for “other” retail (which covers mainly small-ticket discretionary items such as cosmetics).”
Westpac’s economists say some of the price falls may be due to retailers finally passing on the benefits of the high Australian dollar, which has made imported goods cheaper.
However, the bank’s analysts also warn that it may reflect more aggressive discounting by, and reduced margins for, retailers in an effort to give sales a short-term boost.
On a more positive note, the rise in retail sales volumes should be good for the official economic growth figures for the March quarter.
So overall, it looks like more evidence that the nominal economy (comprising both volumes and prices) is running more slowly than the real economy (which includes volumes only). While this will not affect headline GDP, it suggests lower revenues for state governments via reduced GST receipts.
