Australia's January retail sales post small gain on food-related spending

By Stella Qiu

SYDNEY (Reuters) - Australian retail sales posted a small gain in January after a strong showing in the last quarter as consumer spending continued to pick up amid a slowdown in inflation and large cuts to income taxes.

Other data showed net exports unexpectedly added to economic growth in the fourth quarter, matching contribution from government spending, suggesting some upside surprise to the economic momentum as 2024 drew to a close.

Retail sales rose 0.3% in January from December, when they fell 0.1%, Australian Bureau of Statistics (ABS) data showed on Tuesday. The outcome was in line with analysts' forecasts.

Sales were up 3.8% on a year earlier at A$37.1 billion ($23.1 billion), with the ABS noting the rise was driven by food-related spending, rather than on discretionary items.

"Bumper crowds across large-scale events, including record attendance at the Australian Tennis Open and cricket events, lifted spending in catering services," said Robert Ewing, head of business statistics at the ABS.

The outlook for sales has been helped by the first interest rate cut in over four years, which lowered mortgage payments and lifted consumer sentiment. Consumers have also benefited from a slowdown in inflation and the large cuts to income taxes.

The Reserve Bank of Australia has assumed some of the recent rebound in consumption was temporary and driven by discounting at the year-end. Indeed, the report showed household goods fell 4.4% in January, following four straight months of rises.

However, the RBA still remained cautious about the prospects of further policy easing, having cut rates by a quarter-point to 4.1% last month. A hurdle for more rate cuts is the surprising strength in the labour market, which should support income and spending.

Markets imply a scant chance it will cut again at the next meeting on April 1, but a 78% probability of a move in May.

($1 = 1.6098 Australian dollars)

(Reporting by Stella Qiu; Editing by Christopher Cushing and Jacqueline Wong)

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