Australian retail sales rose 5.7% in May 2026 year-on-year. The three-month rolling growth was 5.4% and for non-food retail it was 6.9%. These figures are all above long-term average growth of 4.9% for total retail and 4.4% for non-food retail. Given the persistence of strong growth, some may feel a downturn is unlikely. We expect the downturn in sales growth to be gradual and more evident late 2026 and early 2027 as income growth slows. Additional risks are building if house prices fall.

The link provides a presentation associated with a webinar we held. The recording is embedded in the presentation and details our revised forecasts for retail in the year head. Since we last published our retail forecasts in January 2026, a lot has changed. Higher petrol prices and interest rates will lead to slower retail growth. We forecast retail sales growth of 4.0% for 2026, which is a revision down from 4.5% previously. On the surface it looks like a mild revision. However, the slowdown for non-food retail and dining out is larger at a one percentage point. Discretionary spending growth could slow by 3% by December 2026. The offsets to a more negative stance are higher inflation in food categories, unemployment remains low and households have savings buffers to deal with the pressures. There is a bear case where spending turns negative, but that requires recessionary conditions and an unsympathetic RBA and government.

Given the increased uncertainty for consumers, we have put together a slide deck to help navigate the potential risks to retail demand over the next 12 months. Separately we have published reports about both the risk from higher petrol prices and what history tells us about the impact of interest rate hikes on retail spending.