Spending slows as households start to shut up shop

A tepid lift in retail sales suggests squeezed household budgets are keeping shoppers away from big-ticket items but consumers aren't fully boycotting the shops just yet.

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

The indicator, one of four data points signposted by the Reserve Bank ahead of its finely balanced April cash rate decision, has been volatile during the past three months.

Evolving spending habits largely accounted for these unusual results, with Black Friday sales pulling festive season shopping forward to November.

The February figure, however, represented a return to more normal spending patterns but dampened by rising interest rates and high inflation.

While spending on food and some non-food items continued to grow modestly, the pullback in the other retailing component, down 0.4 per cent, and unchanged household goods numbers suggested consumers were spending less on certain discretionary items. 

BIS Oxford Economics head of macroeconomic forecasting Sean Langcake said higher interest rates were weighing on 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.

Viewed over a three-month average to strip out the volatility, AMP Australia senior economist Diana Mousina said retail trade was down by 1.5 per cent over the three months to February, one of the worst outcomes in the history of the series.

But she said rising interest rates and high inflation were not hitting consumers as hard as usual due to the unusually high share of fixed-rate mortgages, strong competition among lenders for variable-rate customers and robust savings buffers.

Ms Mousina said the latest run of economic data, including robust labour market data, hinted at an economy losing momentum but coming off a high base.

"So the chance of a rate hike at next week's board meeting is higher than the one per cent odds the market is currently pricing," she said.

But given risks in the global banking sector, slowing inflation and weakening economic conditions, AMP Capital expects the RBA to keep the cash rate on hold next week before starting to cut rates later in the year. 

NAB markets economist Taylor Nugent said the February retail trade pointed to relative resilience in consumer spending.

"Overall, the data shows the consumer has not rolled over, but is still consistent with a slowing in consumption growth," Mr Nugent said.

With strong employment and business conditions data and relatively resilient, but slowing, consumption growth, the bank's economists anticipate another rate hike in April.

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.