Retail sales rose strongly in June as colder weather enticedconsumer into shops, adding to the chance of an interest rate risenext week, economists say.

Retail trade at current prices rose 1.4 per cent in June to aseasonally adjusted $19.180 billion from a downwardly revised$18.914 billion in May, figures from the Australian Bureau ofStatistics (ABS) showed.

Economists had forecast an increase of one per cent in themonth.

In the June quarter, retail trade fell 0.2 per cent in chainvolume terms, the ABS said.

That compared with expectations of a 0.4 per cent rise.

Citigroup economist Shane Lee said the June month result wasstrong, offsetting the weakness in April and May.

Mr Lee said the result added to the case for an interest raterise of 25 basis points to 6.50 per cent by the Reserve Bank ofAustralia (RBA) next week.

He said while there was across-the-board growth in sales inJune, there was significant growth in clothing and soft goodsretailing due to colder weather conditions.

“Other categories were also quite strong,” Mr Lee said.

“It also follows a very strong March quarter, so that wouldsuggest that consumer spending has actually been quite strong forthe first six months of this year.”

ANZ economist Amber Rabinov said June’s cold weather droveconsumers to shops to buy winter woollens, with clothing and softgood sales rising by 5.6 per cent in the month.

But she said the decline in retail trade during the June quarterwas a sign of downside risk to household spending.

Ms Rabinov said the rebound was expected following monthly salesdrops in April and May.

Retail trade fell 0.2 per cent, seasonally adjusted, during theJune quarter which suggests consumer activity has moderated fromthe robust pace of the March quarter.

“Moreover, with retail prices rising 1.3 per cent in the Junequarter, real (ex-inflation) retail trade actually declined by 0.2per cent in the June quarter, and indicates some downside risk tohousehold consumption and GDP (gross domestic product) growth inthe June quarter.”

AMP senior economist Bob Cunneen said the surge in retail salesprimarily represents a rebound from artificially weak nominalreadings for April and May.

He said consumers appeared to be encouraged to spend amidhealthy labour market conditions and a stabilisation in petrolprices.

He said the quarterly retail sales result was subdued by a 1.2per cent rise in retail prices.

“From the RBA’s perspective, today’s nominal spending data andretail price result probably removes the last vestige of doubtabout raising interest rates next week,” Mr Cunneen said.

“Combine today’s data with yesterday’s surge in June creditgrowth, robust business conditions recorded by the NAB Businesssurvey as well as a material slide in the Australian dollarperformance over the last week suggests that the RBA will leantowards raising Australia’s cash rate to 6.50 per cent inAugust.”

However, he said the RBA’s decision would still be a close call,with the recent turbulence in US credit markets providing apossible last minute reprieve if the central bank expects theadverse credit conditions to materially impact global growthprospects.