KEY POINTS:
Retail sales surged in the March quarter, posting the strongest gains in both dollar and volume terms since the mid-1990s.
The news saw the New Zealand dollar jump half a cent against the greenback and led some economists to query the market's view that Reserve Bank Governor Alan Bollard has finished raising interest rates.
Retail sales rose 1.3 per cent in the month of March, adjusted for seasonal effects, on top of a 2.1 per cent increase in February, Statistics New Zealand reported.
That pushed sales for the March quarter 3.4 per cent higher than in the December quarter and 6.9 per cent higher than in the same period last year.
When price changes are allowed for, the quarterly increase was even more dramatic. In volume terms, sales were 3.8 per cent up on December - the strongest increase since this statistical series began in 1995. Excluding the automotive sector the increase was still 3.7 per cent.
The increase was twice what the market was expecting and the kiwi dollar jumped from US73.3c to US73.8c on the news. It closed at US73.73c.
Wholesale interest rates also rose. The market now sees a 22 per cent chance that Bollard will raise the official cash rate again next month, according to Credit Suisse's swaps-based indicator, up from 18 per cent on Friday.
The retail sales data follow Quotable Value reporting a return to double-digit inflation in house prices, and last week's report of strong jobs growth in the March quarter.
Deutsche Bank chief economist Darren Gibbs said another tightening could occur as soon as July if the flow of economic data continued to be as strong as it had been in the past three months. He puts risk of an official cash rate increase in July as close to, but not yet over, 50 per cent.
ANZ National Bank chief economist Cameron Bagrie said the anecdotal feedback from his bank's business clients was notably about looking for an opportunity to raise prices to restore profit margins.
"Bollard can't let this continue. If the Reserve Bank is serious about breaking the back of rampant consumer and housing markets then we see little point in waiting. At present we put the odds on a June hike at 40 per cent."
Other economists confronted with the unexpected strength of the March retail numbers took a "we can't explain so we don't really believe it" view.
They point out that the March quarter figures largely predate the Reserve Bank's last two interest rate rises and that the weekend's TV3 opinion poll recorded a drop in consumer confidence.
First NZ capital economist Jason Wong said retailers had reported that demand was patchy and increased discounting had been required to boost sales and offload stock.
Statistics New Zealand said the increase in sales was broad-based, with 20 of the 24 store types recording increases. Where there were declines, they were modest.
Car yards' sales were up 5.8 per cent, reflecting a 6.3 per cent increase in volumes, offset by a 0.4 per cent decline in prices.
Appliance retailers recorded a 9.1 per cent jump in volumes, offset by a 2.4 per cent fall in prices. Statistics NZ said appliance prices had been falling since 2002.
Hey big spenders
* Retail sales in the March quarter soared 3.4 per cent.
* Sales volumes rose 3.8 per cent, including a 9.1 per cent rise in appliance sales.
* Kiwi dollar closes at US73.73c.
* Another Reserve Bank interest rate rise is possible.
