Economy-wide spending may have softened in February, however the data still remains strong enough for the Reserve Bank to keep interest rates steady next month.
Economy-wide spending grew for the 43rd consecutive month in February, but the pace of growth slowed to a crawl in the month, according to the Commonwealth Bank Business Sales Indicator (BSI).
The Index rose by just 0.1% in trend terms in February after similar growth in January. In annual terms, growth slowed to 5.8% – the slowest growth in two years.
However, with economy-wide sales consistently growing for the past three and a half years and retail sales above long-term averages for the past year, CommSec chief economist Craig James says a pullback in growth was expected.
“Retail spending had been growing above longer-term averages for the past year, so it was to be expected that sales would start to under-perform the ‘normal’ growth rates,” he said.
James says the Australian economic outlook still remains “positive” as “lower petrol prices and lower interest rates boost spending power.” As such, the Reserve Bank has scope to hold off on another rate cut until May.
“The Reserve Bank will consider cutting rates at the next few Board meetings and there remains a high chance that it will cut rates again at the April Board meeting. However, CommSec expects the Reserve Bank to keep rates on hold until the May meeting, after the next round of inflation data.”
The Commonwealth Bank BSI covers spending broadly across the economy rather than just retail sales, including spending on automobiles, personal services and airlines. The data is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities.