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Rate cuts over: Retail sales climb

The Reserve Bank of Australia (RBA) is unlikely to cut rates again in the immediate future as retail sales jumped by the most in three years as consumers continue to open their wallets and splash out.

According to the Australian Bureau of Statistics, seasonally adjusted sales rose 1.3% in February over January, which also saw a rise of 1.2%, and follows December’s fall of 0.5%. Compared to February last year, retail turnover has risen 4.6%.

Food retailing was the largest contributor, followed by household goods, other retailing, cafes, restaurants and takeaway food services, department stores and clothing, footwear and personal accessory retailing.

Supermarkets and grocery stores such as Woolworths Limited (ASX: WOW), Coles – owned by Wesfarmers Limited (ASX: WES) and IGA stores, supplied by Metcash Limited (ASX: MTS), showed strong growth in February, up by 1.4%, seasonally adjusted.

In good news for consumer electronics stores such as Harvey Norman Holdings (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH), electrical and electronic goods retailing saw extremely strong growth of 2.6%. These retailers should also benefit later this year when new gaming consoles from Sony and Microsoft arrive, as well as an expected update to Apple’s iPhone 5.

The trends show that consumers are splurging out, after what seems like years of keeping their hands in their pockets and their money in the bank. Record low interest rates, low unemployment, rising house prices and a strong recovery in the Australian equity market are likely to have contributed to households feeling more comfortable about loosening the purse strings.

Foolish takeaway

Rising retail sales means it’s unlikely that the RBA will cut interest rates anytime soon. News that building approvals also recorded a strong rise in February will also add weight to that argument. Now might be a good time for mortgage holders to fix all or part of their home loan, as the next rate move could very likely be upwards.

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More reading

The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Woolworths and JB Hi-Fi.

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