Retail sales in Australia declined unexpectedly in April, as warm weather dampened demand for winter clothing, according to data released on Friday.

Department stores also faced challenges due to fewer discount events, highlighting cautious consumer behaviour.

This slowdown occurred despite lower borrowing costs and easing inflation, reinforcing investor expectations of a potential interest rate cut by the Reserve Bank of Australia (RBA) at its July meeting.

Data from the Australian Bureau of Statistics revealed that retail sales dropped 0.1% in April compared to March, defying analyst predictions of a 0.3% rise and breaking a three-month streak of growth.

With sales reaching A$37.2 billion ($23.91 billion), this marked a 3.8% increase year-on-year, a slowdown from March’s 4.3% and relatively weak considering the annual population growth rate of around 1.7%, Reuters reports.

Food, clothing, and department stores all experienced declines, while household goods and dining out performed better, partly boosted by catch-up spending in Queensland after widespread floods.

“Clothing retailers told us that the warmer-than-usual weather for an April month saw people holding off on buying clothing items, especially new winter season stock,” according to ABS head of business statistics, Robert Ewing.

Retail sales represent about 35% of household consumption, indicating a weak start to the second quarter. Consumption barely contributed to economic growth last year, a level of weakness typically seen only during recessions.

This sluggishness was a key factor behind the central bank’s decision to cut interest rates by a quarter point to 3.85% this month, and why markets anticipate at least three more rate cuts this year, potentially bringing rates down to 3.10%.

The RBA’s first rate cut in February appeared to have minimal effect on consumers, as retail sales remained flat in volume terms throughout the March quarter, and overall spending increased only slightly.

This cautious spending prompted the RBA to once again lower its consumption forecasts for the year, although it remains hopeful that a mix of previous tax cuts, easing inflation, and reduced borrowing costs will eventually encourage consumers to spend more.

Adding to the negative sentiment have been recent volatile swings in financial markets, sparked by US President Donald Trump's tariff plans, which have cast a shadow over the global economic outlook.

Surveys revealed a drop in consumer confidence in April, which was only partially restored after the US scaled back some of its steep tariffs on China, Australia’s largest trading partner.