Macquarie prefers Staples over Discretionary stocks: Inflation-driven retail sales growth

Australian retail sales have increased for nine consecutive months as consumers shrug off the 275 basis points worth of rate hikes since May and continue to spend.

Macquarie said that despite the continued strength from consumers, retail sales growth is being driven by inflation, particularly food.

"We think the latest increase in the cash rate to 2.85% will pinch household budgets as mortgage holders face increased repayments," Macquarie analysts said in a note last Friday.

"These factors are likely to lead to a slowdown in discretionary spend to offset these headwinds, in our view."

ABS confirms easing volumes

Retail sales rose 0.2% quarter-on-quarter in September, the fourth consecutive quarterly rise but the smallest since covid lockdowns ended in October 2021, according to the Australian Bureau of Statistics.

"Sales volumes reached a new record level in the September quarter 2022, but growth slowed to just 0.2 per cent following 1.0 per cent quarterly rises in the June and March quarters," said Ben Dorber, ABS Head of Retail Statistics.

“While volumes growth eased, retail prices climbed a further 2.0 per cent in the September quarter 2022, reflecting the strong rise seen in last week’s Consumer Price Index.”

State of play

The following observations were made about the impact of elevated inflation and consumer spending patterns.

• Inflation-driven food growth: Supermarket and grocery sales rose 4.1% year-on-year in the September quarter while food at home inflation was 10.7%. "This suggests there is a decline in volume, and spending growth is being fuelled by inflation. Consumers are purchasing fewer goods .. other categories such as home appliances and durables follow a similar pattern."

• Online sales drop stabilising: "Online spending has had a step change downward as customers return to brick-and mortar stores. Online food shopping however has declined at a slower rate and looks to be stabilising."

• Liquor sales resilient: Liquor spend rose 1.0% year-on-year in the September quarter, even though its cycling elevated sales from lockdowns last year. "This showcases the resilience of the category. We note that price inflation is likely softening a decline in volumes."

Stock ratings

"We continue to prefer Staples over Discretionary," notes Macquarie.

Staples ratings:

Source: Macquarie Research | Table: Market Index

Discretionary ratings:

Source: Macquarie Research | Table: Market Index