Via Westpac:
The big surprise in the March retail report was a softer than expected result for real retail sales over Q1, with much of the spectacular stock-piling driven surge in March monthly nominal sales due to prices rather than volumes.
Indeed, that monthly result was revised up from a preliminary estimate of 8.2%mth to 8.5%mth, led by a spectacular 24% jump for basic food – considerably bigger than the 15% jump in non seasonally adjusted sales seen around Christmas. ‘Other retailing’, which includes pharmacies and stationery/home office supplies, also recorded a big 16.6% jump. A the other extreme, cafes and restaurants, and clothing retailers saw a 22% drop, sales likely cratering late in the month as social distancing restrictions came into full effect.
For the March quarter as a whole, nominal sales rose 2.7%qtr. However, most of this was due to higher retail prices – the retail deflator up 1.9%qtr, the strongest quarterly rise since the GST introduction in September 2000. That was much stronger than the CPI detail which pointed to a 1% gain. The result has likely been skewed by the big compositional shift in spending, with a big jump in spending in segments that likely saw stronger price gains in the quarter (the retail deflator reflects these shifts fully while the CPI does not due to its fixed weights). Notably, prices jumped 2.6%qtr in the basic food category but were up just 0.3%qtr across all other categories (on a combined basis).
The bottom line is that real retail sales rose just 0.7%qtr, well below expectations of a 1.8%qtr gain. That in turn removes considerable upside risk to the wider consumer spending measures in the Q1 national accounts (due to be released on June 3).
Add that the much larger services component of consumption was likely weak and we get likely recession in the March QTR.
