Weaker discretionary spending dragged retail sales lower in September as the stimulus from the federal government’s cash payments receded.

The result is likely to encourage the Reserve Bank of Australia (RBA) to leave interest rates unchanged in December, after hiking in each of October and November, economists said.

Retail sales fell 0.2 per cent in September to a seasonally adjusted $19.719 billion, the Australian Bureau of Statistics (ABS) said on Wednesday.

Over the September quarter, retail sales fell by 0.4 per cent in seasonally adjusted volume terms.

The monthly fall confounded market expectations for a rise of 0.5 per cent, while the quarterly decline was as expected.

JP Morgan economist Helen Kevans said the boost to consumer spending drivey by the federal government’s cash payments to lower-to-middle income earners in April and May had finished.

“The post-government cash-payments period always was going to be a key test for households, particularly as it now is being coupled with the RBA’s removal of monetary policy stimulus,” Ms Kevans said.

“Until now, consumers have proved unexpectedly resilient, but today’s retail numbers suggest the fiscal-fuelled retail spending spree has ended.”

Turnover in department stores fell 2.9 per cent in September, clothing, footwear and personal accessory retailing was down 0.8 per cent and household goods was 0.7 per cent lower.

Cafes, restaurants and takeaway sales rose one per cent in the month.

ANZ economist Alex Joiner said a lift in consumer confidence during the September quarter had not flowed into spending and could encourage the central bank to leave interest rates unchanged in December.

The Reserve Bank of Australia (RBA) raised the cash rate by 25 basis points to 3.50 per cent on Tuesday, its second consecutive monthly rise.

The Westpac/Melbourne Institute consumer sentiment index rose to its highest level in September since July 2007.

“I suppose that’s something that will give the RBA some scope for pausing on rate hikes in December,” Dr Joiner said.

“Where the falls fell in most major categories, they gained in August.

“So we might have seen the last of the fiscal stimulus package-fuelled gains in retail trade.”

RBC Capital Markets senior economist Su-Lin Ong said the weaker data would add to speculation that the RBA could pause in December but it would not change the bank’s view of a strengthening economy.

“At 3.50 per cent, the cash rate remains too low for an economy that is returning to a trend pace of growth against the backdrop of a strong China,” Ms Ong said.

Ms Ong forecasts the RBA to lift the cash rate by a quarter of a percentage point to 3.75 per cent on December 1.

Australian National Retailers Association chief executive Margy Osmond said the RBA should leave the cash rate unchanged next month following the fall in retailing during the September quarter.

“The Australian Bureau of Statistics today revealed very weak retail sales data, confirming retailers calls for the Reserve Bank to press pause on further interest rate rises as we enter the all important `Santa Zone’,” Ms Osmond said.

Retail sales fell in all states except a 0.4 per cent rise in Victoria and a flat result in Tasmania.

AAP