SYDNEY, April 30 (Reuters) - Australian retail sales fell unexpectedly in March as cautious consumers tightened their purse strings amid elevated costs of living and high interest rates, while growth in annual sales slowed to the lowest in more than two years.
That led markets to trim the risk of another rate hike by September to 30%, from 44% before the data. The Australian dollar slipped 0.3% to $0.6544 while three-year bond futures extended earlier gains to be up 8 ticks to 95.98.
Data from the Australian Bureau of Statistics (ABS) on Tuesday showed retail sales fell 0.4% in March from February, when they rose by a revised 0.2%, helped by spending associated with sold-out Taylor Swift concerts.
Analysts had looked for a rise of 0.2%.
Sales of A$35.66 billion ($23.37 billion) were up just 0.8% from a year earlier, the slowest pace of gains since August 2021 when COVID-19 shutdowns paralysed parts of the economy.
"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," said Ben Dorber, ABS head of retail statistics.
"Underlying retail turnover has been flat for the past six months... 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."
The soft retail sales report underscored the pressure on household budgets, which is a major reason that the Reserve Bank of Australia has kept interest rates unchanged at a 12-year high of 4.35% for a third straight meeting.
However, the rate outlook has changed drastically since a surprisingly hot first quarter inflation report last week decimated any chance of policy easing this year and jobs data showed the labour market remained tighter than expected.
The RBA's next policy decision is on Tuesday, with economists predicting a hike option will be back on the table.
Tapas strickland, head of market economics at National Australia Bank, said the soft consumption is largely within expectations, but that the RBA will be concerned about the stickiness in inflation and the slow progress in the labour market.
"With activity growth below trend, we don't think that they will hike in May, but there is a risk that they do hike, but we don't think it's particularly large at this stage."
For March, the largest falls were recorded in clothing, which fell by 4.3%, and department stores, which dropped 1.6%, offseting large rises the month before.
Food retailing rose 0.9% in the month.
($1 = 1.5260 Australian dollars) (Reporting by Stella Qiu; Editing by Christopher Cushing and Shri Navaratnam)
