On 2 June 2023, the Fair Work Commission is due to make its decision about minimum wages for fiscal 2024. April 2023 trimmed mean inflation was 6.7% and other measures of price rises are fairly similar. In past minimum wage decisions, the Fair Work panel has decided to raise wages by 0.5% to 1.0% above the prevailing trimmed mean inflation. The Fair Work Commission is likely to be “inflation-matching” in our view and therefore an outcome above 6.0% is most likely. For more on wage risks for retail, see this report What if retail wages rise 8%?

Retail sales growth of 5.6% for March 2023 is fading towards long-term trend growth and the additional detail reveals a more meaningful slowdown in non-food retail. Electronics, furniture and hardware all showed notable declines and footwear slowed markedly in March. Online sales only rose 1.1%, which reflects weaker demand in non-food retail. The data also suggests retail volume growth is barely positive. The fade in inflation is the key call on retail from here. We expect continued weaker sales trends over the next 12 months.

Australian inflation of 7.0% in March 2023 quarter suggests price rises peaked in December 2022. We think the same is true of retail prices. Inflation has dropped meaningfully in appliances and furniture prices are starting to fall.  Food inflation has also peaked albeit this is more a function of fresh categories which now have very low inflation such as vegetables and red meat. The unwind of elevated inflation will see retail sales slow. The drop is more noticeable in household goods with a more significant slowdown likely in other non-food categories later in calendar 2023.

Retail sales rose 6.5% in February 2023. The additional detail showed a substantial slowdown in electronics, and small declines in hardware and furniture. This is the start of the downturn, which is now impacting those categories that tend to have the quickest reaction to interest rate increases and had the greatest pull forward during COVID-19. While demand elsewhere looks to be holding up well, it is largely price inflation driven. Underlying trends are softening, and a broader retail slowdown will be evident in coming months in our view.