September retail sales were much stronger than expected rising by 0.8% m-o-m (consensus +0.4%) and after the August gain was revised up to +0.5% from +0.4%. Over August and September retail sales have taken a marked turn for the better implying that the non-mining part of the economy is starting to lift quite strongly. In September department stores were again the strongest category, rising by 2.8% after a 6.7% gain in August. Clothing and footwear sales are also rising strongly, improving by 2.5% in September and marking a seventh consecutive monthly improvement. Over the three months ending September retail sales after allowing for inflation increased by 0.7% q-o-q (consensus +0.2%) implying a strong increase in Q3 household consumption expenditure and probably a relatively big increase in Q3 GDP.

Q3 house prices were also released today and showed a 1.7% q-o-q increase, +7.6% y-o-y. Among the eight capital cities Sydney house prices lifted the most, by 3.6% q-o-q, 11.4% y-o-y. Melbourne house prices were up by 1.9% q-o-q, +6.8% y-o-y and Brisbane rose by 1.2% q-o-q, +4.1% y-o-y. Rising house prices are adding to household wealth providing an additional reason for households to spend more freely. The stronger turn in Australian economic readings, including the out-sized 14.4% m-o-m lift in September home building approvals announced last week make it a near certainty that the RBA has finished its cash rate cutting cycle. It is increasingly likely that the RBA will start raising the cash rate in 2014, although still not until the second half of the year at this stage.