May's bump followed a modest 0.1 per cent rise in April and a 0.4 per cent fall in March.
Retail spending came out stronger than most forecasts. (Jono Searle/AAP PHOTOS)
The stronger-than-expected figures landed amid renewed speculation interest rates might need to stay elevated for longer or even rise to combat lingering price pressures.
The Reserve Bank of Australia is looking for signs the economy is slowing in response to higher interest rates, with household spending an ongoing source of uncertainty.
Despite the stronger-than-expected retail sales result, National Australia Bank head of market economics Tapas Strickland said there was little to indicate a shift in consumer momentum in the May numbers.
In trend terms, retail sales were flat month-on-month and up a subdued 1.5 per cent year-on-year, he said.
"More important for policy will be the June quarter consumer price index and updated staff assessments of the degree of spare capacity, productivity, and impact of government budgets," Mr Strickland said in a note.
May's retail sales boost was largely driven by financially squeezed consumers taking advantage of early end-of-financial year sales, the Australian Bureau of Statistics said.
"Retail turnover was boosted this month by watchful shoppers taking advantage of early end-of-financial year promotions and sales events," Robert Ewing, ABS head of business statistics— Australian Bureau of Statistics (@ABSStats) Visit https://t.co/DU4X6GUt8d pic.twitter.com/7Zrst62Zb2July 3, 2024
"Many retailers started end-of-financial year sales early, offering larger discounts than usual and noted that shoppers remain price-sensitive in response to persistent cost-of-living pressures," head of business statistics Robert Ewing said.
Over the month, clothing, footwear, and personal accessory retailing logged a 1.6 per cent lift, which followed falls in the two previous months.
Household goods retailing lifted 1.1 per cent and other retailing 0.2 per cent, while food-related spending was mixed.
Oxford Economics Australia head of macroeconomic forecasting Sean Langcake said tax cuts would help support household budgets.
"But we expect momentum will still be patchy over the next year as consumers navigate their current malaise," he said.
Shoppers snapped up clothing, footwear and accessories after shying away in the two previous months. (Con Chronis/AAP PHOTOS)
Building approvals also rose over the month, posting a 5.5 per cent rise in May on the statistics bureau's count.
In April, approvals lifted 1.9 per cent.
Commonwealth Bank of Australia senior economist Belinda Allen said approvals had recorded a "slight improvement" throughout 2024.
"Approvals generally rise when interest rates are cut," Ms Allen said.
"Although capacity constraints in the construction industry could limit the lift in supply coming through when easing starts."
