Household budget pressures: it’s a long way to the shop

The latest ABS data shows nominal household expenditure grew by 3.7 per cent in the year to December 2018 while nominal retail expenditure grew by just 3.0 per cent year-on-year in the same period. 

"Retail spending is out of focus for households as other costs of living take priority in budgets.”

{CF_INFOGRAM}

ANZ Research believes the rising cost of “essentials” - including utilities, health and education - is taking a toll on retail’s position in household budgets. Wage growth has been sluggish in recent years, so the rising prices of “essentials” is absorbing an increasing share of household expenditure.

{CF_INFOGRAM}

As a result, the ‘new normal’ in retail is a slower growth rate as retailers fiercely compete for a smaller share of spending. Retail growth has been trending down over the last few years, growing by just 3.1 per cent in the year to March 2019, including 1.1 per cent volume growth and 2.0 per cent inflation.

{CF_INFOGRAM}

And even within retail, expenditure is moving away from discretionary goods as households focus on the “essentials”. Drought-related hikes in food costs have been a key driver of rising retail prices and in nominal terms, many of the fastest growing retail categories in the last year have been food related.

{CF_INFOGRAM}

It’s a different story on the volumes side. While price hikes in food have kept overall expenditure strong, volume growth of food categories has been weaker than discretionary goods. And while discretionary goods have been, on average, weaker in nominal terms, this is mostly due to deflation or flat pricing. Strong international competition and technological changes is keeping prices flat across discretionary categories, helping sustain volume growth.

{CF_INFOGRAM}

Falling housing prices in Sydney have led to much lower growth in retail expenditure over the last year, despite higher employment and wage growth than the national average.

In contrast, Victoria’s retail demand growth has outperformed other states, despite similar weakness in the housing market. Victoria was the only state to report volume growth of more than 2 per cent in the last year, indicating a widespread slowdown in retail spending across the states and territories.

{CF_INFOGRAM}

Adelaide Timbrell is an Economist and David Plank is Head of Aus Economics at ANZ