By Wayne Cole
SYDNEY, May 8 (Reuters) - Australia's retail sales were surprisingly soft in March with spending falling on everything from clothes to restaurants, in a sorry end to the quarter that underlined concerns about the health of household consumption.
Tuesday's figures from the Australian Bureau of Statistics showed retail sales were flat in March, which compared with analyst expectations for a 0.3 percent rise. After adjusting for inflation, sales edged up just 0.2 percent in the March quarter, again well short of the 0.6 percent forecast.
That augured ill for economic growth given annual retail sales of around A$315 billion ($236.53 billion) account for almost 18 percent of gross domestic product (GDP).
It was particularly disappointing as recent upbeat data on exports had suggested growth might have picked up smartly in the March quarter, an outcome that now looked in doubt.
"Conditions remain tough for bricks and mortar retailers, with weak wage and income growth, rising prices for essentials such as electricity, and increased competition all putting downward pressure on sales," said Sarah Hunter, head of Macroeconomics Australia for BIS Oxford Economics.
The poor retail news came just hours before the centre-right Liberal National government of Prime Minister Malcolm Turnbull hands down an annual budget that is likely to be laced with pre-election sweeteners.
High on the giveaway list will be tax relief for low and middle income families, tax breaks for retirees and promises of more spending on infrastructure. boost to household incomes would be welcome given anaemic wages growth, high mortgage debt and easing home prices are all sapping spending power.
This fragility was highlighted by the Reserve Bank of Australia (RBA) in its latest outlook for the economy. Governor Philip Lowe warned it was unlikely inflation would revive as desired unless wage growth also picked up meaningfully.
Some surveys have reported firms are finding it harder to find skilled labour, yet there are few signs of that translating into a broad-based acceleration in pay deals.
"We see growth holding a little below trend on average through 2018 and 2019 and, as a result, anticipate little progress on wages and inflation," argued Westpac chief economist Bill Evans.
"Combined with the broad-based softening of the housing market, there is little to no justification for a rate hike in 2018 or 2019."
Interest rates have already been stuck at a record low of 1.5 percent since August 2016, the longest steady stretch since the cash rate was first introduced in 1990.
Currently the futures market 0#YIB: is not fully priced for a hike until August next year.
($1 = 1.3317 Australian dollars)