SYDNEY, Jan 31 Reuters Australian retail sales recorded the biggest drop in more than two years in December, as rising borrowing costs and skyhigh inflation finally sank spending, an economic shock that may lessen the need for much more policy tightening.

Retail sales fell 3.9 in December from November, after 11 months of consecutive gains, Australian Bureau of Statistics ABS data showed on Tuesday, suggesting that rate hikes so far are working as intended.

That also marked the biggest drop since August 2020 when parts of the country were under a lockdown due to the COVID19 pandemic.

The outcome missed the median forecast of a drop of 0.3 by a large margin. November39;s result, driven by Black Friday sales, was revised up to a rise of 1.7 from an originally reported gain of 1.4.

The large fall in December suggests that retail spending is slowing due to high costofliving pressures, said Ben Dorber, ABS head of retail statistics.

Retail businesses reported that many consumers had responded to these pressures by doing more Christmas shopping in November to take advantage of heavy promotional activity and discounting as part of the Black Friday sales event.

Investors reacted by pushing the Aussie dollar lower to 0.7046, from 0.7060 before the data, while paring back the implied peak for the cash rates by the Reserve Bank of Australia to 3.7, compared with 3.8 earlier.

Sales declined the most across discretionary goods including department stores, household goods…