UK retail sales maintain downtrend in September, down almost 10% from Spring 2021 peak
UK retail sales maintained their downtrend in September, as households struggled with falling real incomes and shops were shut for the Queen’s funeral. Indeed, retail sales volumes dropped a larger-than-expected 1.4%M/M to be almost 10% below the peak in April 2021 and 1.3% below the pre-pandemic level in February 2020. In addition, with sales in August having dropped an even larger 1.7%M/M, the volume of sales was down 2.0%3M/3M, representing the fifth consecutive quarterly decline. Within the detail, food store sales volumes declined 1.8%M/M in September to be 3.2% below the pre-pandemic level while non-food store sales were down 0.6%M/M and 2.7% below the pre-pandemic level. The extra bank holiday also likely weighed on automotive fuel sales, which dropped 1.3%M/M to be more than 10.2% below the February 2020 level. In nominal terms, the total value of sales was also down 1.4%M/M in September. But given high inflation, it was up 3.8%Y/Y compared to the drop of 6.9%Y/Y in volumes, illustrating again how households are having to spend more to buy less.
Consumer willingness to spend fell even before government’s major fiscal volte face
Looking ahead, the weak trend in sales looks set to continue. Indeed, while it ticked higher in October, the GfK headline measure of consumer confidence was up just 2pts from September’s reading of -49, which was the lowest on the series dating back to 1974. Within the detail, households judged that the climate for making major purchases deteriorated to a level that has rarely been worse on the survey – only at the worst point of the Global Financial Crisis and the initial wave of Covid-19. And while expectations for personal finances and the general economic situation over the coming twelve months were not quite as bad as last month, it is notable that the survey was conducted before the government’s announcement of a massive U-turn on its proposed tax cuts, with the additional subsequent prospect of less generous support to cope with energy bills and renewed austerity – as well as the disturbing wider political dysfunction – likely to push consumer confidence lower again next month.
Japanese core inflation rises to highest for eight years amid boost from yen depreciation
Japan’s headline CPI inflation rate came in a touch firmer than expected in September, remaining unchanged from August’s eight-year high of 3.0%Y/Y. That occurred despite a notable easing in fresh food inflation (down more than 6ppts to 1.9%Y/Y). So, when excluding such items, the BoJ’s forecast measure of core CPI rose 0.2ppt to 3.0%Y/Y, the highest since 2014 (or 1991 outside of the consumption tax hike periods). When also excluding energy (unchanged at 18.5%Y/Y), core inflation on the BoJ’s preferred measure was up 0.2ppt to 1.8%Y/Y. And the internationally comparable core estimate (ex all food & energy) rose to 0.9%Y/Y, the highest since 2015 but nevertheless still well below the equivalent measures in the US (6.6%), UK (6.5%) and euro area (4.8%). Indeed, our estimate of non-energy industrial goods inflation jumped a further 0.9ppt to 3.7%Y/Y in September, with the uptrend accentuated by yen weakness, and increased pressures in items such as furniture and household utensils, recreational goods, and clothing and footwear. In contrast, services inflation moved sideways (0.2%Y/Y) despite a pickup in accommodation costs and prices of recreation and culture related to reopening from pandemic restrictions. Looking ahead, BoJ Governor Kuroda restated today that he expects inflation to peak around year-end and slow thereafter. However, the weak yen and energy prices remain wildcards that mean the outlook for inflation in Japan, as elsewhere, remains highly uncertain.
Euro area consumer confidence expected to fall to a new record low
In the euro area, this afternoon brings the release of the European Commission’s flash consumer confidence index for October. Amid record high inflation, rising borrowing costs and increasing recessionary risks, a further deterioration in household sentiment at the start of Q4 is expected, with the index forecast to fall to a new record low from -28.8 in September.