We have refreshed our forecasts for the retail sales outlook. In short, sales growth has started 2022 stronger than we anticipated and good conditions should last another six months. We forecast 4.5% sales growth in calendar 2022 (prev 3.0%) and 2.3% in 2023 (prev 3.0%). The overall two-year growth is virtually unchanged. While higher interest rates will impact spending, wages growth will be higher and the savings rate will cushion the impact. Higher inflation should also help retail sales.

While it is difficult to precisely forecast Australian retail sales given the uncertainties in the economy, we are confident enough to predict another solid year of growth. We expect retail sales to rise 3% in 2022, which is a strong result on top of 7% growth in 2020 and 5% growth in 2021. We estimate food sales will rise 4% and non-food sales to increase by 1%.  In our view, the three issues that will influence retail sales the most are the magnitude of price rises, the pace of wages growth and the extent to which consumers reallocate spending away from retail. Given COVID-19 is still with us, retail is likely to outperform once again.