Australian national accounts for the June 2026 quarter showed household income growth of 5.5%, which remains above trend despite recent rate hikes. Consumer spending rose 4.9%, which means savings increased slightly. Data released on retail spending trends is conflicting. The retail sales release suggests growth of 5.0% for the June quarter, while the national accounts subset only had 3.1% growth. Data debates aside, the strength in the economy is likely to lead to one more interest rate increase and therefore lingering pressure on retail spending. We expect a slowdown will become more evident in the December 2026 quarter as lower housing churn shows through. The negative wealth effect is also building as a downside risk for retail sales. We forecast retail sales growth of 3.7% in FY27e, down from 5.1% in FY26.

The National Accounts for the March 2026 quarter paint a picture of slower household income growth, but consistent spending trends. Income growth of 5% matched broader consumer spending and retail spending trends. The consumer’s initial response to higher interest rates and petrol prices has been to save a bit less. Given savings are a healthy 6%-7% of income, we expect savings to delay the downturn in retail and see a trough in retail sales growth at close to 3% in the December 2026 quarter.