July retail sales well ahead of forecasts

Retail sales in July rose a seasonally adjusted 1.8 per cent, well ahead of the median 0.7 per cent rise forecast by a Reuters poll of economists, according to Statistics New Zealand.

Excluding cars sales, retail sales were up 1.6 per cent in July.

Actual retail sales in the year to July were up 6.4 per cent against economists' forecast of a 5.7 per cent rise.

Today's figures will increase pressure on the Reserve Bank to hike interest rates at its quarterly review tomorrow.

Economists predict the bank will leave interest rates unchanged even though inflation is expected to rise over top of the bank's 1-3 per cent target in the September quarter.

Much of the increased sale can be attributed to the British and Irish Lions rugby tour with sales in the hospitality industries well up. Higher petrol prices also contributed.

Cafes and restaurants' sales were up 5.6 per cent and the accommodation group was up 5.7 per cent. Bars and clubs were also up, increasing 0.5 per cent in July, following a 3.6 per cent increase in June.

The seasonally adjusted increase in total sales for July 2005 is the largest recorded since March 2004, with 20 of the 24 retail industries recording increased sales, Government Statistician Brian Pink said.

Other industries to record significant seasonally adjusted increases were petrol retailing (up 2.6 per cent), car sales (up 2 per cent) and supermarket and grocery stores (up 1.2 per cent). Appliance retailing recorded the largest decrease, down 4.5 per cent.

UBS economist Robin Clements said today's number would boost the September quarter figures but sales were likely to be lower in August.

Deutsche Bank economist Darren Gibbs said the effect from the Lions tour was bigger than expected but other factors played a part.

"You've got strong growth in wages, still strong growth in employment, rising house prices, and all of that is a pretty good combination as far as consumer spending is concerned."

While the Reserve Bank may not push interest rates up, it was likely to continue its tough talk, and the move to lower rates would take longer, Mr Gibbs said.

"The Reserve Bank has talked about upside risks to consumer spending, and the data is bearing those risks out, so plenty to keep the RBNZ in hawkish mode tomorrow morning."

The New Zealand dollar was strong after the announcement -- up at US70.45c compared with its US70.19c opening.

- NZPA