Australian retail sales edge up 0.2pc in May but miss analyst forecasts

ANZ economists have joined the queue predicting an interest rate cut next week after fresh retail data showed Australians were keeping their cash in the bank.

Retail sales lifted 3.3 per cent in the year to May, taking Aussie spending at the checkout to $37.3 billion for the month.

Consumers cut back on groceries and liquor in May, while upping spending on clothes and at department stores.

ANZ’s Adam Boynton labelled the figures “weak” and brought forward his forecast of rate relief from August to July.

That brings ANZ into line with the other big four banks anticipating the Reserve Bank of Australia will lower the cash rate from 3.85 per cent to 3.6 per cent on July 8. Financial markets also view a cut as nearly certain.

But Mr Boynton warned the decision would be a close call.

“Given today’s data showing a weak six-month trend in retail sales, the most recent reads on consumer confidence showing the prior uptrend remains stalled, and ongoing uncertainty around US trade policy as we approach the expiry of the tariff pause, we now expect the RBA to cut the cash rate by 25 points at its July meeting,” he said.

Yet jobs figures remained strong and were better than expected, while household incomes were improving.

UBS’s George Tharenou said “the momentum of the economy is still fading”, despite rate cuts in February and May.

“Overall, for housing and consumption, we are still looking for more of a recovery through the rest of 2025,” Mr Tharenou said.

“The RBA’s rate cuts should hopefully lead to a pick-up of demand and activity. That said, for now, the momentum is fading over recent months.

“It appears the RBA’s rate cuts, so far at least, are leading to more of a boost to dwelling prices, credit growth, and saving, rather than ‘real’ activity or spending.”

But Betashares chief economist David Bassanese said the figures were “notoriously volatile”.

“It does not necessarily give the green light to the RBA to cut interest rates next week,” he said. “Anecdotal credit card data suggests there’s been a solid uplift in retail spending in recent months, even though it has not yet been reflected on retail sales.”

May price data showed core inflation — which strips out volatility — was at the slowest pace since 2021.

Mr Bassanese said “there’s every risk it could bounce back again” in more comprehensive quarterly data.

“Prudence suggests the RBA should and would await confirmation of lower inflation in the quarterly CPI report before cutting again in August, despite the market pricing a rate cut next week with near certainty,” he said.