Retail sales jumped higher than expected in July, showing that consumers are still spending despite cost-of-living pressures.

Sales rose 1.3 per cent in July, which was sharply higher than the 0.3 to 0.4 per cent increase expected by analysts.

The latest lift in retail turnover follows a slowdown in momentum in the past two months, with retail sales increasing by 0.2 per cent in June and 0.7 per cent in May.

“After slowing growth in recent months, the 1.3 per cent rise in July was the largest since the 1.6 per cent rise in March,” Australian Bureau of Statistics head of retail statistics Ben Dorber said.

Overall retail trade was up 16.5 per cent compared to the same time last year.

The influx of tourists in July may have bumped up retail sales, ANZ economist Adelaide Timbrell said, pointing out positive overseas arrivals numbers in July coincided with the surge in retail sales.

CreditWatch economist Anneke Thompson said there appeared to be a lot of “catch up” spending on items such as clothes and footwear.

“Overall, the news is still positive for businesses, as consumers have yet to shut their wallets.”

Household goods was the only category to record a fall in turnover, down 1.1 per cent for the month.

Spending in this category has fallen three times in four months.

Because monthly retail data does not adjust for inflation, the rising cost of goods and services would have fed into the strong retail sales figure.

Economists were uncertain how much to attribute to higher prices compared to the amount people were actually buying, although JP Morgan economist Ben Jarman said categories expected to be driving inflation for the quarter – such as energy – weren’t captured in the retail data, suggesting that consumers were spending more.

The higher-than-expected figure is likely to lock in another rate hike, with NAB economist Tapas Strickland arguing the data shows households are still spending and further rate hikes are needed to slow down demand.

“For Australia, today’s rise cements the case for the RBA to raise rates by 50 basis points in September,” Mr Strickland said.

Business confidence has also staged a recovery, lifting for the first time since the RBA started hiking rates.

The August Roy Morgan survey results were mixed, with businesses feeling more positive about the economy in five years but remaining concerned about the next 12 months.

At 96 points, business confidence was still below the long term average of 113.3 but up by 1.1 points from July.

While businesses are feeling more confident and consumers are still spending, wages growth remains sluggish.

Employers are offering higher pay packets to entice workers into vacant jobs but the boost in advertised salaries is still falling short of inflation.

Salaries listed on SEEK job ads have surged 4.1 per cent over the year to June, although growth is no longer accelerating.

While wages are trending upwards amid fierce competition for workers, advertised salary growth was still falling behind the 6.1 per cent annual increase in the consumer price index in the June quarter.

Household budgets are also under pressure from rising fuel prices, which have lifted for the second time in seven weeks.

Motorists are paying $1.77 a litre at the pump on average. While up 4.9 cents a litre from last week, petrol prices are still well below peaks above $2 a litre seen earlier in the year.

Poppy Johnston

(Australian Associated Press)

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