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Investing.com– Australian retail sales grew more than expected in July, data showed on Monday, as consumer spending recovered after an unexpected drop in the prior month, although sales appeared to have largely stagnated amid high inflation. 

grew 0.5% in July from the prior month, data from the Australian Bureau of Statistics (ABS) showed. The reading was higher than expectations of 0.3%, and was a recovery from the 0.8% drop seen in June. 

But sales hovered around A$35 billion (A$1=$0.6428)- a level they have stuck to for most of 2023, with growth from the prior year largely stagnating as Australian consumers grappled with higher inflation and interest rates.

“The rise in July is a partial reversal of last month’s sharp decline in turnover. This was after weaker-than-usual end of financial year sales… While there was a rise in July, underlying growth in retail turnover remained subdued,” Ben Dorber, ABS head of retail statistics, said in a statement. 

While retail sales appear to have stagnated this year, they have still logged marginal increases, keeping overall retail spending at record highs. The trend points to stickier consumer inflation in Australia, which is in turn expected to potentially elicit a hawkish stance from the Reserve Bank on interest rates.

The jumped 0.5% on Monday, tracking this notion.

The Reserve Bank of Australia hiked rates by over 400 basis points in the past year, as it moved to curb rising inflation. While the rate hikes did result in some cooling for the economy, retail sales have remained largely robust on strength in the labor market. 

Strong consumer spending and a tight job market gives the RBA more economic headroom to keep raising interest rates. But the central bank has held rates steady for the past three months, citing a worsening economic outlook for Australia.

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