In December and home-building approvals declined, underscoring expectations the central bank won't raise borrowing costs again anytime soon.
Retail sales climbed 0.3 percent from November, the Bureau of Statistics reported today in Sydney, dropping short of the 0.5 percent median estimate of 24 economists surveyed by Bloomberg News. Building approvals fell 1.9 percent, topping economists' estimated 1 percent decline.
Australia's central bank raised interest rates three times last year to temper inflation, which breached its target for three successive quarters. Debt-laden households have pared spending and borrowing, which may cool an economy in its 16th year of expansion and forestall further interest-rate increases.
“I don't think there will be any pressure to move rates this year,'' said Andrew Boyes, Melbourne-based chief financial officer at Adidem Group Ltd., which owns 101 Body Shop and Accessorize stores.
“The economy was slowed by interest-rate increases last year and consumer prices are getting back to an acceptable level.''
The Reserve Bank of Australia raised the overnight cash rate target to a six-year high in November after Governor Glenn Stevens said the previous month his “main job'' was to see off inflation.
Consumer prices declined 0.1 percent in the fourth quarter, the government said last month. A monthly inflation gauge released by TD Securities Ltd. and the Melbourne Institute in Sydney today was unchanged from the previous month.
“The deceleration in headline inflation will give the Reserve Bank some breathing space when it comes to the next interest-rate increase,'' said Stephen Koukoulas, chief Asia-Pacific strategist at TD Securities Ltd. in Sydney.
Governor Stevens and his board hold their monthly interest-rate meeting tomorrow and announce a decision the following day in Sydney.
All 24 economists surveyed by Bloomberg News on Feb. 2 say the bank won't raise rates this month, and only three predict another increase this year. Seven expect a cut by the year's end.
The Australian dollar fell to 77.30 U.S. cents at 4:32 p.m. in Sydney from 77.51 cents immediately before the release of today's retail and building reports, as traders bet the Reserve Bank won't move again this month.
The yield on the benchmark 10-year bond fell 5 basis points to 5.88 percent. A basis point is 0.01 percentage point.
The Reserve Bank's three interest-rate increases last year added about A$120 ($93) to monthly mortgage repayments of borrowers with an average mortgage of about A$250,000, according to the Housing Industry Association.
The May interest-rate increase was offset by income tax cuts which took effect in July, and the August increase came as falling gasoline prices returned more than A$30 a month to the average household budget. Retail sales rebounded in the months following the May and August interest-rate increases.
The November rate increase hasn't been accompanied by an offsetting gain, and may be having a greater impact on indebted consumers.
The average household's debt-to-income ratio has more than doubled in the past decade, reaching a record 158 percent in the third quarter of last year, Reserve Bank figures show.
Slower retail sales and declining building approvals may put a brake the economy's expansion as it enters a 16th year.
Household spending makes up about two-thirds of Australia's economy, which grew just 0.3 percent in the third quarter from the previous three months, the slowest pace in more than three years.
An abortive housing recovery in mid-2006, before the central bank's rate increases, helped residential construction contribute to economic growth for the first time in a year in the second quarter. Housing subsequently made no contribution to third-quarter growth.
Slower expansion may also help cool inflation. Annual inflation was 3.3 percent in the three months ended Dec. 31, slowing from 3.9 percent the previous quarter. The central bank targets an annual inflation rate of between 2 percent and 3 percent.
The Reserve Bank's interest-rate increases will damp the housing market in the short term before a recovery later this year, according to David Clarke, chief executive officer of building- materials maker Rinker Group Ltd.
“The impact of recent interest-rate increases is still to be felt,'' he said in a statement last week.
The recovery will come because of “pent-up housing demand reflected in a sharp increase in rents,'' he said.
Rising immigration has boosted demand for housing just as a shortage of supply from a 2005 construction slowdown starts to bite, particularly in Sydney, Australia's largest city.
The rental vacancy rate in Sydney was at a decade low of 1.5 percent in the fourth quarter, according to the Real Estate Institute of Australia, driving up rents.
The median rent for a two-bedroom apartment in Sydney rose by as much as 7.7 percent in the year to September, the Real Estate Institute said.