June quarter retail sales double expectations

Reserve Bank (RB) governor Alan Bollard could be one step closer to pulling the interest rate trigger at next month's review after retail sales came in well above expectations.

Retail sales rose by a seasonal and inflation adjusted 1.3 per cent in the June quarter -- more than double economists' expectations of 0.6 per cent, Statistics New Zealand figures out today showed.

Dr Bollard adopted a hawkish stance on rates at his most recent official cash rate review last month, saying the central bank needed to remain vigilant, with inflation -- driven by strong growth in household spending and rocketing oil prices -- nearing the top end of the RB's 1-3 per cent target band.

Economists say the RB will likely stop short of a pre-election rate hike when it meets on September 15, but today's figures will certainly add to the tightening bias.

"Certainly, it isn't cutting the RB any slack," UBS chief economist Robin Clements said.

"I am not convinced it's that red flag that's the final blow to cause them to hike, but (it) certainly isn't going to make them any more comfortable."

Doug Steel, an economist with Westpac bank said rates were likely to remain on hold, but with a bias towards tightening.

"There's still reasonable domestic demand but there's nothing really that's going to worry the Reserve Bank on the inflation front."

The New Zealand dollar, which has rallied strongly in the past year on the back of the country's official interest rate of 6.75 per cent -- the highest in the developed world -- rose to US70.68c on the news, from US70.58c.

Today's strong retail number is the second piece of positive economic data in recent days. It follows the news yesterday that New Zealand is back on top of the OECD club of rich nations as having the lowest unemployment rate, overtaking South Korea.

The unemployment rate fell to 3.7 per cent in the June quarter from 3.9 per cent in the March quarter, the second lowest after the December 2004 quarter since the series began in March 1986.

Today's data showed nineteen of the 24 industries recorded higher seasonally-adjusted sales in the June 2005 quarter.

The most significant upward contributions were all from motor vehicle-related industries. Fuel retailing rose 3.1 per cent and motor vehicle repair and services were up 5.1 per cent.

The largest decrease in the quarter came from motor vehicle retailing, which was down 0.9 per cent.

Seasonally-adjusted retail sales in the month of June rose 1.2 per cent, above expectations for a 1 per cent rise.

Actual sales for the June year were up 7.3 per cent.

Adjusted for inflation and seasonal variation, June quarter sales were up 5.9 per cent on the June 2004 quarter.

- NZPA