Retail spending remains subdued as living costs bite

Retail spending has stayed flat over the month as rising interest rates and sky-high living costs weigh on shoppers.

Official retail sales rose a modest 0.2 per cent in February, down from a 1.8 per cent lift in January.

The result was broadly in line with expectations of a flat result and follows a period of volatility over November, December and January.

Despite the fluctuations over the past three months, Australian Bureau of Statistics head of retail statistics Ben Dorber said retail spending, on average, had been flat through the end of 2022 and into the beginning of the new year.

"Non-food industry results were mixed as consumers continue to pull back on discretionary spending in response to high cost of living pressures," Mr Dorber said.

Department store spending lifted one per cent in February and clothing, footwear and personal accessory retailing improved 0.6 per cent.

The other retailing component fell 0.4 per cent, and household goods retailing was unchanged over the month.

Spending in food-related industries rose in February, with cafes, restaurants and takeaway food services up 0.5 per cent and food retailing improving by 0.2 per cent.

BIS Oxford Economics head of macroeconomic forecasting Sean Langcake said higher interest rates were dampening consumer spending.

He also said weakening retail trade figures were starting to reflect easing goods price inflation, as well as the shift in spending patterns away from goods and back to services.

Mr Langcake said there were few surprises in the retail trade data for the Reserve Bank, which would be dissecting the economic data closely ahead of its "line-ball" April cash rate decision.

The central bank has given itself room to pause at the upcoming meeting, although another hike remains firmly in play.

"There are signs that goods price inflation is cooling, as is consumer spending more broadly," Mr Langcake said, which would bolster the case for a pause.

But on the other hand, he said the ongoing pickup in hospitality spending pointed to persistence in services demand and inflation, potentially fuelling the case for further interest rate hikes.

The cost of living crunch and higher interest rates have also been weighing on consumer sentiment.

The ANZ-Roy Morgan weekly measure of consumer confidence lifted by a modest 0.1 points after four weeks of consecutive declines.

Despite the minor improvement, the headline figure at 76.6 points was still below 80 for the fourth week in a row and well below long-run averages.

Instability in the global banking sector has been added to the list of economic concerns, although authorities have made it clear they will do whatever it takes to keep the situation contained.

Following bank collapses in the US and UBS's reluctant takeover of Credit Suisse, Treasurer Jim Chalmers has spoken with US Treasury secretary Janet Yellen and European Central Bank president Christine Lagarde about volatility in the global financial system. 

"It's clear from my conversations that international authorities are prepared to do what's necessary to reassure markets at a time of uncertainty and volatility," Dr Chalmers said.