How Aussie retail sales just boosted the ASX 200 on Tuesday

The latest Aussie retail sales data is offering a boost to the ASX 200. But why?

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The S&P/ASX 200 Index (ASX: XJO) got a handy boost right at 11:30am AEST today.

The benchmark index leapt 0.15% over the following 15 minutes, reaching 7,658.0 points.

The ASX 200 moved higher right after the Australian Bureau of Statistics (ABS) released the latest retail sales data for the month of March.

Here's what we know.

ASX 200 rises on retail data

The ASX 200 lifted after the ABS revealed that Australian retail turnover fell by a seasonally adjusted 0.4% in March.

This is a reversal from the gains of the last two months. Retail turnover increased 1.0% in January and increased 0.2% in February.

"Consumers pulled back on retail spending in March as cost of living pressures remained high," ABS head of retail statistic Ben Dorber said.

Dorber noted that the March retail sales growth was historically weak:

Underlying retail turnover has been flat for the past six months and was up only 0.8% compared to March 2023. Outside of the pandemic period and introduction of the GST, this is the weakest growth on record when comparing turnover to the same time in the previous year. 

Retail turnover was down across every sector in March with the exception of food, which was up 0.9%.

ASX 200 retail shares could be feeling the pinch, with the largest falls occurring in clothing, footwear and personal accessory retailing (down 4.3%) and department stores (down 1.6%).

"The Taylor Swift-inspired boost in turnover for fashion and accessory retailers last month has proved to be temporary with an instant reversal this month," Dorber said.

As for what the months ahead may bring, Dorber noted, "Retailers told us that overall trading conditions remain challenging with consumers being cautious in their discretionary spending."

Bad news is good news

So, why did the ASX 200 jump higher on news that Aussie retail turnover is sliding?

Well, it appears to be a classic case of bad news for the economy could be good news for the broader market.

That's because investors have been laser-focused on the stubbornly sticky inflation.

The series of interest rate hikes from the RBA has seen the official cash rate rocket from an all-time low of 0.10% in May 2022 to the current 4.35%.

That's worked to bring inflation down from the near 8% levels recorded in December 2022.

But the final mile (or kilometre, if you prefer) to bring inflation back within the RBA's 2% to 3% target range is proving to be a harder slog than many economists had been forecasting.

Increasing fears that the RBA may hold off on easing until 2025, or may even hike interest rates again in 2024, has thrown up headwinds for many ASX 200 shares.

But today's bad news on retail spending could help bring inflation back into check and increase the odds of some interest rate relief in 2024.

Which would be welcome news for most ASX 200 investors.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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