Retail sales slump 1.2% in April

By NZPA

Thursday 14th June 2007

A slump in retail sales during April is being cautiously welcomed as a hopeful sign in the fight against inflation.

Data published today by Statistics New Zealand (SNZ) showed seasonally adjusted total retail sales were unexpectedly down 1.2% in April from a month earlier.

The kiwi dollar stumbled on the data, falling quickly from near US75.20c, touching a low around US74.70c before recovering up towards US75c by 2pm.

Reserve Bank governor Alan Bollard has been trying to quell over-heated domestic demand and the inflation it generates, and today's data was seen as a sign that could be starting to happen, but most economists were hedging their bets.

The whole of the period covered by today's figures came after Bollard's move in early March to lift official interest rates for the first time since December 2005.

He subsequently lifted the official cash rate two more times, taking it to 8%, in late April and again last week.

T he 1.2% decline in April sales was the largest drop since February 2004, when sales fell 1.8%, SNZ said.

The fall, and its size in particular, was a surprise to the markets, with the median forecast among economists in a Reuters poll having been for a flat result.

Motor vehicle retailing fell a seasonally adjusted 4.1% in April from March, accounting for almost half the total decline.

Sales in the core retailing industry groups, which excluded the four vehicle-related industries, decreased a seasonally adjusted 0.9% in April, compared again to predictions of a flat result.

After vehicle retailing, other major contributors to the fall in total sales were accommodation, down 6.3% and appliance retailing, down 4.8%.

Department stores were the only group to show a notable increase in sales for April, up 2.6%, SNZ said.

SNZ pointed out that sales remained high, following increases of 1% in March and 2.3% in February.

The ANZ bank said that on the face of it, today's data was an early indication of softening activity.

But it said it was wary of reading too much into the figures yet, with the April data likely to represent some statistical payback following the surprisingly strong increases in the preceding two months, rather than general underlying weakness.

Annual retail sales growth remained elevated at 7.4%, ANZ said.

Despite that, the Reserve Bank would take some comfort from today's data and would be encouraged by early signs of softness in some durable goods which were more sensitive to interest rates, such as appliance retailing and motor vehicles.

But those areas had shown strength earlier in the year and did tend to be volatile.

Goldman Sachs JBWere economist Shamubeel Eaqub said that while the data did tend to be volatile, the underlying trend appeared to be following a gradual moderating evident in electronic card transactions three months earlier.

That added to his belief that economic news would increasingly show the effect of interest rate and petrol price rises this year and argued against the need for more interest rate increases, he said.

Citigroup senior economist Annette Beacher questioned how much of the decline in April sales was due to a decline in volumes, rather than continued falls in prices.

While appliance retailing had fallen for the second consecutive month, for the first quarter as a whole the amount of appliances sold had surged as prices fell. So some caution was needed in assuming that figure was soft, Beacher said.

Her view was unchanged that the Reserve Bank needed to see a substantial and lasting slump in domestic demand before signalling an end to the tightening cycle.

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