SYDNEY: Australia’s retailers suffered another month of Scrooge-like sales in June as widespread discounting crimped takings even as shops sold more goods, another sign the economy likely slowed last quarter.

The disinflationary pulse in the data also underlined the main reason why the Reserve Bank of Australia (RBA) cut interest rates to a record low of 1.5 percent this week, and why it may yet have to ease again.

Financial markets imply a 50-50 chance that rates could be cut to 1.25 percent by Christmas.

“We are forecasting the cash rate to remain unchanged for the foreseeable future,” said Ivan Colhoun, chief markets economist at NAB.

“But we now flag the potential for further interest rate reductions in 2017, given the likelihood that inflation is expected to remain very low for an extended period.”

Thursday’s data from the Australian Bureau of Statistics showed retail sales rose just 0.1 percent in June, well short of

forecasts of a 0.4 percent increase.

Adjusted for inflation, sales for the whole June quarter increased by 0.4 percent, the smallest rise in two years and a likely drag on economic growth in the quarter.

Analysts already assume growth slowed from the first quarter’s surprisingly rapid 1.1 percent pace, with some looking for a rise of perhaps half that.

That was disappointing given the retail industry has sales of A$290 billion ($220 billion) a year and is the second biggest employer with 1.25 million workers.

Fierce competition from new offshore entrants has depressed prices for everything from food to clothes and televisions. That eats into cash revenues even as more goods are sold.

The war is especially bloody in the supermarket sector where Australia’s two home-grown giants, Woolworths and Coles , are locked in a struggle with each other and newer entrants.

German chain Aldi has come from nothing to capture around 10 percent of the entire market with an aggressive rollout of new stores. Woolworths, in contrast, recently announced a slowdown of its store rollout and the closure of outperforming shops as part of a A$959 million restructuring write-down.

Overall, the ABS estimated prices in the retail sector rose by just 0.3 percent in the first six months of the year which, if annualised, would be an alarmingly tepid 0.6 percent.

That is happening at a time when global forces are putting downward pressure on import prices and wages. Core inflation is already at a record low of 1.5 percent and looks like staying under the RBA’s target band of 2-3 percent for some time.—Reuters