(Bloomberg) -- Australian retail sales rose for a third straight month in March, driven primarily by food inflation, as household spending begins to cool under the weight of the Reserve Bank’s aggressive interest-rate increases.

Sales advanced 0.4% from a month earlier, double economists’ forecasts, official data showed Wednesday. Every category outside of food and dining out reported a decline.

It “is a soft number, particularly when considering the pace of inflation,” said Belinda Allen, an economist at Commonwealth Bank of Australia. For the quarter, the news isn’t positive either as the figures imply a fall in the volume of spending, she said. 

Quarterly data will be released on Tuesday. 

The result suggests consumers are beginning to hunker down in the face of rising borrowing costs, in line with the central bank’s aim. The RBA unexpectedly tightened policy Tuesday to take the cash rate to 3.85% from a record-low 0.1% a year earlier in an effort to ease price gains.

In a further headwind to consumption, a large number of mortgages that were fixed for three years at record low rates during the pandemic are due for renewal in coming months. 

Annual retail sales growth of 5.4% was the weakest since December 2021 and lower than the 7% inflation recorded in the first three months of the year. 

“That said, services spending continues to accelerate because the labor market remains tight, while households continue to draw down on the A$300 billion in excess savings,” said Faraz Syed, economist at Citigroup Inc. in Sydney. 

“Moreover, higher net overseas migration suggests that population growth will also support retail trade in the near-term.”

Even so, Syed expects retail volumes to decline for a second consecutive quarter to be down 0.7%. 

Retail sales are a key input for the RBA’s rate decisions as private consumption accounts for roughly 60% of gross domestic product. Resilient consumers have been a major factor in policymakers’ confidence that the economy can withstand higher rates.

Earlier Wednesday, consumer electronics retailer JB Hi-Fi Ltd. reported a slowdown in same store sales in the third quarter from a year earlier. Its household goods retailing unit posted a larger 3.8% drop in a sign Australians are reining in spending.

Bloomberg Economics expects weakness in 2023 as the full impact of policy tightening passes through to household budgets. 

The RBA is predicting a cooling in spending, estimating consumption growth of 1.7% by end-2023, down from a 7.5% gain in 2022. 

--With assistance from Tomoko Sato and Tim Smith.

(Adds details, comments from economists.)

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