Retail sales in Australia recorded their largest increase in 10 months during November, driven by Black Friday discounts that attracted budget-conscious shoppers. Despite the rise, the figures fell short of forecasts, indicating consumer demand remains muted.

Data from the Australian Bureau of Statistics (ABS) showed retail sales climbed by 0.8% in November compared to October, when sales grew by a revised 0.5%. Analysts had anticipated a stronger gain of 1.0%. On an annual basis, sales were up 3.0%, amounting to A$37.1 billion (US$23 billion).

The ABS highlighted that promotional activities now span the entire month of November, diluting the impact traditionally seen over the Black Friday weekend. Department store sales saw a notable increase of 1.8%, while spending at cafes and restaurants rose by 1.5%.

"The continued rise in popularity of Black Friday sales in Australia has meant the seasonal strength has been unable to be captured effectively by the ABS's seasonal adjustment," said Ben Udy, lead economist for Oxford Economics Australia.

He added, "This makes it extremely difficult to get a read on the underlying strength of consumption from these data, as the solid rise is likely to be offset by a contraction in sales in December."

Indeed, December sales last year experienced a sharp drop as many consumers brought forward their purchases to take advantage of November discounts. Analysts suggest this trend could repeat, tempering the outlook for overall consumption during the holiday period.

The Australian dollar slipped by 0.3% to $0.6199 following the release of the data. Markets remain focused on the Reserve Bank of Australia (RBA), with expectations building for a potential rate cut in February.

A decline in core inflation reported on Wednesday has strengthened the case for easing monetary policy. Futures markets currently price in a 78% probability of a rate cut, while swaps suggest a 60% chance.

The RBA has held the cash rate at 4.35% for over a year, after a sharp increase from a pandemic low of 0.1%. The central bank believes the current rate is sufficiently restrictive to contain inflation while supporting employment. However, lacklustre consumer spending and slowing inflation could prompt policymakers to take action sooner rather than later.

Analysts note that income tax cuts and a deceleration in inflation have offered some support to the outlook for retail sales. However, the overall pick-up in consumer spending has been underwhelming, contributing to the RBA's dovish stance last month.

As November's data points to a mixed picture, attention now turns to December sales and their potential impact on the economy as a whole.

Reuters