Strong retail figures make rate rise a certainty: Economy roundup

If there was any doubt that the Reserve Bank of Australia will lift interest rates by 0.25% when it meets today, new data showing retail sales growth of 0.5% in December has surely put them to rest.

Although slightly below market expectations of a 0.6% increase, the result still points to a quick growing consumer demand and means retail revenue for 2007 increased by 8.4%, its fastest rate of growth in three years.

Significantly, however, the data also reveals that retail prices increased by just 0.2% in December, a level that is below the rate of inflation.

“Lower retail prices, combined with strong growth in household incomes and solid labour market results, have created an ideal environment for shoppers, notwithstanding higher petrol prices and higher interest rates,” ANZ economist Wain Yuen says.

Increased spending on discretionary consumer items was largely responsible for the growth in sales in December with household goods retailing up 1.8% and recreational goods retailing up 1.4%. The weakest sector was clothing and soft goods retailing, which declined by 0.9%.

There are also inflation warning signs in today’s NAB quarterly business survey. Both capacity utilisation and wage costs were at record highs in the three months to December 2007, the survey found, with the former at a whopping 84.2%.

A slight lift in business conditions underpinned an economy that NAB chief economist Alan Oster says continued to run at a “robust” rate in the December 2007 quarter. NAB forecasts GDP for 2007-08 growth to stay at strong 3.5%.

There is, however, some sense that the prospect of rising interest rates – and the ongoing squeeze in international credit markets – is having some dampening effect on spending.

The NAB survey reports a decline in business confidence, down three points to remain just six points above the line separating negative from positive growth.

And new building approvals for new houses and apartments dived 16% in December, coming off a 8.2% rise the month before. The seasonally adjusted estimate for the value of total building approved fell by 14.1%.

And on the markets today, traders have endured a wobbly ride with the S&P/ASX200 jumping up and down around its starting mark for the first hour of trading before adopting a more concerted downward trend later in the morning. At 12.38pm the S&P/ASX200 is down 1% on yesterday’s close to 5810.


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