By Wayne Cole

SYDNEY Australian retail spending rebounded in May as consumers were tempted by online sales events and promotional discounting, a sign of resilience in consumption that might add to the case for another rise in interest rates.

Data from the Australian Bureau of Statistics (ABS) on Thursday showed nominal retail sales rose 0.7% in May from April, when they were flat, handily beating forecasts of 0.1%.

Sales of A$35.52 billion ($23.52 billion) were up 4.2% from a year earlier, steady on April but a world away from post-lockdown boom levels of 19% seen in the middle of last year.

The ABS noted an early start to some end of financial year sales events boosted turnover, along with Mother’s Day and a popular "Click Frenzy Mayhem" event.

"This latest rise reflected some resilience in spending with consumers taking advantage of larger than usual promotional activity and sales events for May," said Ben Dorber, ABS head of retail statistics.

The solid result is a complication for the Reserve Bank of Australia (RBA), which has raised interest rates by a huge 400 basis points in the past year in attempt to cool demand and curb sky-high inflation.

The central bank holds its July policy meeting next week and markets are unsure on whether it might further raise the 4.1% cash rate, or pause to see how past tightening is working.

Futures implied a 36% chance of a quarter-point rise, up from 27% ahead of the retail data, while analysts at three of the four major domestic banks are tipping an increase.

Figures out on Wednesday seemed to argue for a pause as headline consumer price inflation slowed sharply to 5.6% in May, down from 6.8% in April and well under forecasts of 6.1%.

However, service sector inflation remained uncomfortably high and could easily be used to justify a tightening if the RBA board felt it necessary.

"The risks of a hike in July are not zero given parts of the CPI that focussed on rents and market services did continue to show some signs of inflation accelerating or remaining elevated," said Stephen Wu, an economist at CBA.

"But the CPI does increase the chances of an on-hold decision. We then expect a hike in August."

($1 = 1.5103 Australian dollars)

(Reporting by Wayne Cole; Editing by Christopher Cushing, Robert Birsel)