Buyers' confidence helps to reverse downward sales trend

Retail sales have had their highest increase since June, after three consecutive months of falls and an increase in consumer confidence.

Sales rose by 0.9 per cent for January after a revised 0.4 per cent slide during the December shopping period, Bureau of Statistics data released on Tuesday showed.

The largest contributor to the surprise lift was other retailing - including recreational goods, pharmaceuticals and stationery - which rose by 2.6 per cent. More consumers bought household goods and food and dined out.

There was a 0.7 per cent increase in clothing, footwear and accessory sales, although department store sales fell by 0.6 per cent.

NSW, Victoria and Queensland recorded gains of 1.3, 1 and 0.9 per cent respectively, but Western Australia fell by 0.4 per cent. The increase in sales was the strongest growth in January for six years.

The Australian dollar spiked to $US1.0225 shortly after the data release.

ANZ's head of Australian economies, Justin Fabo, said the data showed a broad-based increase in retail sales across all sectors.

"Overall, the numbers are reasonably positive. That's good news and is consistent with the anecdotal evidence we've heard earlier in the year and with the pick-up in consumer confidence," Mr Fabo said.

Barclays' chief economist Kieran Davies economic data released on Tuesday, which included a narrowing of the current account deficit and an increase in government spending, reflected fairly solid growth in the final stages of 2012.

"[For] retail sales, I think they just have difficulty seasonally adjusting around Christmas and New Year so I would say that the weakness in December was overstated and the bounce in January is overdone as well," Mr Davies said.

"But nonetheless, you are seeing an improvement in sales. There was a big lift in consumer confidence over recent months so people are following through on that optimism by spending more."

Deutsche Bank's chief economist Adam Boyton said it was important to note that while there were possibly some early signs the economy was responding to lower interest rates, there was "certainly nothing yet sufficient that would cause you to say that the RBA has finished easing".

"We've had one good retail sales number after some very weak ones in the later part of 2012," Mr Boyton said, adding that he still expected three 25 basis points of rate cuts this year.

"I would be inclined to view the January figures as payback for a very weak end to 2012. And even looking at today's numbers, we've got a strong bounce in January, but it doesn't change the fact that the underlying trend in the retail sector is still very weak and has been for some time."

Commonwealth Bank economists Gareth Aird and Michael Workman said retail spending by households still appeared weak in contrast to the quarterly household spending, which was about 6 per cent per annum.