Deloitte Access Economics report tips spending will slow over 2022

New figures reveal a surprising turnaround for Aussie retail but a grim outlook lies ahead as inflation “puts the brakes” on overall spending.

Shocking figures have revealed Australian retail sales came out of the pandemic “better off than if it had never happened”, with a 1.2 per cent gain in real turnover for the March 2022 quarter.

But economic experts have warned challenges posed by inflation could “put the brakes” on overall spending in the second half of this year as retailers face a shift to value purchases, margin squeezes and rising business costs.

According to the latest retail forecast report from Deloitte Access Economics, retail spending is roughly 6.2 per cent ahead of its pre-Covid trends – the spending expected if “Covid disruptions had not occurred”.

The report found this was boosted by the 1.2 per cent gain in real turnover and retail spending surging at the end of 2021.

Further sales growth is expected for clothing, restaurants and department stores to drive another 5.5 per cent growth.

Deloitte Access Economics partner David Rumbens said the growth outlook was “positive” but inflation was now a “cold hard reality” for many retailers and households.

“The price pinch is near unavoidable, with CPI price growth for non-discretionary goods and services up 6.6 per cent, more than double that of discretionary which was up 2.7 per cent,” he said.

Mr Rumbens said households were less likely to reduce their consumption of these non-discretionary goods, such as food and fuel.

He warned this would place “significant pressure” on other spending components.

Retail price growth is forecast to peak at 5.5 per cent to December this year.

Over the same period, food prices are predicted to increase to 7.6 per cent.

Mr Rumbens warned the majority of retail turnover for the rest of the year and into 2023 and 2024 would be driven by prices rather than sales volume.

“Retail sales volume growth may average only 1.1% over 2023 to 2025, compared to 1.9% per annum for retail price growth,” he said.

Mr Rumbens said businesses may need to think how they could lower costs and avoid losing competitiveness, such as diversifying and building resilient supply chains.

In their outlook report, Deloitte found the hospitality sector had “fully recovered” as spending on catered food surged close to $12.5 billion in the March quarter.

Spending rose another 8.3 per cent, on top of another 18.3 per cent increase in December 2021.

Real turnover in department stores was 8 per cent higher than pre-Covid levels, but the cost of living constraints meant the sector was “unlikely to see their recent spectacular run continue”.

“The worst may still be yet to come with elevated producer prices still flowing through to retailers and concerns that price growth expectations will become embedded,” the report stated.

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