In the latest edition of Deloitte Access Economics’ Retail Forecasts on a quarterly basis, overall retail price growth has already exceeded sales volume growth in both the March and June quarters of 2022.
However, Deloitte Access Economics partner and principal report author David Rumbens said cracks are starting to show as the economy faces a number of challenges.
“Firstly, high price growth means prices — rather than volumes — are becoming the key driver of retail sales growth, and secondly, as Australia reverts towards pre-COVID spending patterns, growth in spending on services is likely to once again exceed growth in spending on goods,” he said.
“Retail is still riding the post-pandemic high, with real retail spending growing 1.4 per cent through the June quarter after an already strong start to 2022. That left real sales growth up 5.5 per cent over the year, with the spending spree particularly centred around discretionary categories.”
On a quarterly basis, Mr Rumbens said, overall retail price growth has already exceeded sales volume growth in both the March and June quarters of 2022.
The report noted that the price pinch will continue to be seen in retail over the next 12 months. Sales volume growth is expected to come in at 3.0 per cent through the year to December 2022, and retail price growth is expected to peak at a much higher 5.9 per cent over the same period.
“Having prices as the main driver of nominal retail sales, or top line revenue, is relatively unfamiliar for retail,” Mr Rumbens said.
“While supply side drivers have cooled it will still take some time for year-to price growth to come down to normal levels, though this is expected by late 2023. But a slowdown in price growth will be little help against another turning point for retailers, when consumers shift further towards services spending over H2 2022 and H1 2023. Overall consumer spending growth is expected to outpace retail growth over the year to the December quarter.”
With unemployment so low, Mr Rumbens said retailers are concerned about the tight labour market and retail job vacancies have more than doubled since May 2019 with employment in the sector lower than May last year.
“Importantly, the industry is missing a key component of its workforce, being migrants, and especially international students. Even with this being a key focus of the federal government’s Jobs and Skills Summit last week, it’s unclear if, and when, international students will return to their pre-pandemic levels,” Mr Rumbens said.
