Rate Rise Tipped As Retail Sales Boom
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CE Retail sales are booming with Harvey Norman, JB Hi Fi and organisations like Bing Lee reporting record growth. Overall retail sales increased at the fastest pace in two years in June, providing further evidence the central bank may raise interest rates next week.

David Jones Ltd., Australia’s second-largest department store chain, more than tripled its forecast profit growth and homewares and electrical retailer Harvey Norman posted accelerating sales growth.

Net income may surge 42 percent in the six months ending July 28, David Jones said on July 18, up from the company’s previous prediction of as much as 13.5 percent. The Sydney-based retailer is due to report earnings in September.

Sales at Harvey Norman, the nation’s biggest furniture and electronics retailer, climbed 15.4 percent in the quarter ended June 30 on demand for flat-panel televisions and video game consoles.

Sales advanced 1.4 percent from May, the Bureau of Statistics said in Sydney today. The rise, the first in three months, beat the 1 percent median gain estimated in a Bloomberg News survey of 25 economists.

 

Stronger-than-expected growth in consumer spending follows reports yesterday showing lending climbed the most in 18 years and housing approvals surged. Faster inflation in the second quarter and the lowest unemployment rate in 33 years have also stoked expectations Reserve Bank Governor Glenn Stevens will increase the benchmark rate to 6.5 percent on Aug. 8.

“It has virtually cemented an interest-rate rise next week,” said Shane Oliver, the chief economist at AMP Capital Investors, who had previously forecast borrowing costs would be left unchanged next week. “There is strong momentum in the economy.”

The Australian dollar rose as high as 85.35 U.S. cents after the retail sales report was released. It traded at 85.21 cents at 1:24 p.m. in Sydney. The yield on two-year government bonds was unchanged at 6.39 percent.

Traders rate the chance the central bank will raise borrowing costs next week at 79 percent, according to a Credit Suisse Group Index based on trading in interest rate swaps. Stevens has left rates unchanged since a quarter-point increase in November 2006.

Rates Survey

Twenty-two of 27 economists surveyed by Bloomberg News last week expect the Reserve Bank of Australia to raise the overnight cash rate target at next week’s meeting.

A separate report today showed the trade deficit widened to a 13-month high A$1.75 billion ($1.5 billion) in June as exports of nickel, coal and aluminum dropped.

Yesterday’s figures showed credit provided to households and companies climbed 1.8 percent from May, the largest gain since May 1989. The number of permits to build or renovate houses and apartments jumped 7.5 percent in June.

Expectations the central bank would increase rates started to build last week, when a report showed consumer prices surged 1.2 percent in the second quarter, quickening from the first quarter’s 0.1 percent gain.

 

Consumer Confidence

Consumer confidence, measured by Westpac Banking Corp., is close to a record high as more people find work and wages gain.

Sales at clothing stores soared 5.6 percent in June from May, food sales climbed 1.2 percent and sales at hospitality businesses, such as bars and restaurants, advanced 1.4 percent, today’s retail figures showed.

“Consumer confidence is growing because the jobs market is strong and interest rates have been steady, said Andrew Boyes, chief financial officer at Adidem Group Ltd. “With the mining boom, strong house prices, inflation and the jobs market, the Reserve Bank probably needs to damp enthusiasm.”

Sales at Adidem, which has 101 Body Shop and Accessorize stores, surged 12 percent in June from a year earlier, Melbourne-based Boyes said in an interview. “It was a good month.”

Adjusted for inflation, retail sales fell 0.2 percent in the second quarter from the previous three months, today’s report showed. Economists expected a 0.3 percent increase.

The retail deflator, a measure of inflation, rose 1.2 percent in the second quarter, the largest gain in more than six years, according to Westpac.

“That’s another confirmation of the strengthening inflation we saw in the CPI report,” said Matthew Hassan, a Sydney-based economist at the bank. “The Reserve Bank may be concerned.”

Cold Snap

Colder weather may have bolstered sales of winter clothes. June’s average temperature was 16.8 degrees Celsius (62 degrees Fahrenheit), compared with 18 degrees over the past decade.