Australia retailers get Black Friday boost, but no bar posed to rate cut

By Stella Qiu and Wayne Cole

SYDNEY (Reuters) -Australian retail sales had the biggest increase in 10 months in November as Black Friday discounting drew cost-conscious shoppers, but the rise missed forecasts suggesting the boost poses no impediment to rate cuts.

Analysts suspect the extra demand was just brought forward from Christmas, with markets still wagering the Reserve Bank of Australia could ease policy in February.

Retail sales gained 0.8% on a seasonally adjusted basis, after rising 0.5% in October, data from the Australian Bureau of Statistics (ABS) showed on Thursday. Expectations were for a rise of 1.0% in November.

The Australian dollar slipped 0.2% to $0.6204 on the data.

Sales were up 3.0% compared to a year ago at A$37.1 billion ($23 billion), with the ABS noting promotional activity now stretched across the entire month of November, not just the Black Friday weekend.

Sales at department stores jumped 1.8% in the month, while spending at cafes and restaurants rose 1.5%.

"The continued rise in popularity of Black Friday sales in Australia has meant the seasonal strength has been unable to be captured effectively by the ABS’s seasonal adjustment," said Ben Udy, lead economist for Oxford Economics Australia.

"This makes it extremely difficult to get a read on the underlying strength of consumption from these data, as the solid rise is likely to be offset by a contraction in sales in December."

Indeed, sales for December the prior year slammed into reverse after a jump in November.

The outlook for sales has been helped somewhat by a slowdown in inflation and large cuts to income taxes. The thus-far pick-up in consumer spending has been disappointing, however, and was a reason that the central bank unexpectedly turned dovish last month.

The RBA has kept interest rates steady for over a year now, judging that the cash rate of 4.35%, up from a record-low 0.1% during the pandemic, is restrictive enough to bring inflation to its target band while preserving employment gains.

A drop in core inflation on Wednesday led markets to ramp up bets for a rate cut in February. Swaps imply a 60% chance for such a move, while futures indicate a 78% probability.

The Commonwealth Bank of Australia now sees the trimmed mean measure of inflation to come in at a quarterly rate of 0.5% in the fourth quarter, while Nomura downgraded their forecast to 0.4%, substantially lower than the RBA's own estimate of 0.7%.

"We previously assigned a ~60% probability to a first 25bp RBA easing in February and think this has now likely risen to at least 70%," said Andrew Ticehurst, a senior economist at Nomura.

"A rise in the unemployment rate in December - our base case - would boost our confidence further."

The RBA will have the December retail sales report, as well as updates on a surprisingly tight labour market before it decides its next move on Feb. 18.

(Reporting by Wayne Cole and Stella Qiu; Editing by Himani Sarkar, Edwina Gibbs and Tom Hogue)