By Stella Qiu
SYDNEY (Reuters) -Australian retail sales barely grew for a fourth straight month in May as gains in clothing purchases were offset by a rare drop in food sales, bolstering the case for another cut in interest rates next week.
Investors now see a 97% chance that the Reserve Bank of Australia will cut its cash rate of 3.85% by a quarter-point next Tuesday as economic growth has remained weak and inflation risks have faded.
The Australian dollar slipped 0.2% to $0.6569.
Retail sales rose 0.2% in May from April, when they were flat, data from the Australian Bureau of Statistics (ABS) showed on Wednesday. That was short of market forecasts for a 0.4% increase and marked the fourth month of sluggish spending.
The A$37.3 billion ($24.5 billion) in sales were up 3.3% on a year earlier, the slowest annual pace since November last year.
The data follows a measure of Australian consumer sentiment for May that showed pessimists still outnumber optimists.
“Households will need more convincing to lift spending; many have banked earlier interest rate cuts, rather than spend them through the economy,” said Harry Murphy Cruise, head of economic research and global trade for Oxford Economics Australia.
“Today’s data is another notch in the column to cut rates when the RBA meets next week.”
Food retail sales fell 0.4%, the first monthly drop this year, while spending in cafes and restaurants was flat. Spending on clothes grew 2.9% and spending at department stores gained 2.6%, though those figures followed big drops the previous month.
The RBA has cut interest rates twice since February as cooling inflation at home offered scope to counter rising global trade risks. However, the economy barely grew in the first quarter as consumers stayed stubbornly frugal and government spending sputtered to a standstill.
A tame inflation reading for May has also encouraged investors to lock in a quarter-point rate cut next Tuesday. Many economists have brought forward their rate cut call to July from August.
Growth in overall household consumption is running short of the RBA’s projections and supports market wagers for further easing to 3.10% by year-end, and maybe an ultimate floor of 2.85% which would put it in stimulative territory.
The RBA is hoping a combination of past tax cuts, slower inflation and falling borrowing costs will embolden consumers to spend more over time.
($1 = 1.5202 Australian dollars)
(Reporting by Stella Qiu and Wayne Cole; Editing by Edwina Gibbs)
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