SYDNEY, May 27 Reuters Australian retail sales climbed to record highs in April as consumers spent big for the holidays, though surging inflation and rising interest rates are steadily sapping spending power.

Data from the Australian Bureau of Statistics on Friday showed retail sales rose 0.9 in April to a record A33.9 billion 24.11 billion, matching analysts39; forecasts.

Sales were up a heady 9.6 on a year earlier, though a chunk of that was due to rising prices.

High food prices have combined with increased household spending over the April holiday period as more people are travelling, dining out and holding family gatherings, said the bureau39;s director of quarterly economywide statistics, Ben James.

Policy makers are hoping households will dip into savings to keep consuming even as real incomes go backwards.

Australians built up around A272 billion worth of extra savings during the pandemic and are sitting on bank deposits alone worth a record A1.26 trillion.

This is one reason the Reserve Bank of Australia RBA felt confident enough to raise interest rates by a quarter percentage point to 0.35 this month in the first hike since 2010 and to flag more increases ahead.

Markets are wagering the RBA will raise interest rates to 0.60 in June and reach as high as 2.5 by the end of the year.

If they are right, that will be one of the most aggressive tightening cycles on record and will add more than A600 a month in payments to the average mortgage.

That would…