Figures confirm soggy retailing

Soggy retail turnover and stalling retail prices could help the Reserve Bank of Australia (RBA) justify an interest rate cut this week,

The RBA is widely, although not very confidently, expected to cut its benchmark overnight interbank cash rate to 4.0 per cent, from 4.25 per cent, on Tuesday when its board gets together for its monthly monetary policy meeting.

In the wake of retail trade figures for December, released by the Australian Bureau of Statistics (ABS) late on Monday morning, the futures market has priced the cash rate at 4.11 per cent for February.

Taking into account the first week, with cash at 4.25 per cent, that implies an average of 4.07 per cent - about three quarters of the way from 4.25 to 4.00 - for the remainder of the month, implying about a three-in-four chance that the RBA will cut.

That shows a marginal firming of confidence from the two-in-three chance the market gave a rate cut ahead of the retail data.

Nevertheless, the figures should support the case for a downward movement in interest rates.

They showed a fall of 0.1 per cent, seasonally adjusted, in retail turnover in December, following no change in October and a rise of 0.1 per cent in November.

In other words, there was no net change in the level of retail turnover through the final three months of 2011.

Adjusted for price changes, the ABS said turnover grew by 0.4 per cent in the December quarter and by 1.4 per cent through 2011, very much on the weak side of normal in both cases.

Combining these real-terms figures with the monthly data, which are not adjusted for price changes, average prices in the retail sector rose by only 0.1 per cent in the December quarter.

The price rise of 1.6 per cent through the year is the slowest annual rate since mid-2010.

The retail trade survey is not a comprehensive account of consumer spending - it excludes such things as rent, health care, utilities, education, petrol and cars.

Nor is its implied measure of prices a reliable guide to the consumer price index (CPI), which the RBA tries to keep to a two- to three-per cent annual growth path over time.

Still, the retail numbers are consistent with easing inflationary pressures and ongoing caution among households.

And that means that if the RBA is considering a rate cut, whether as insurance against a possible eurozone meltdown or to support the already staggering economy - it need not worry about inflationary pressures from consumer spending.

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