Japanese retail sales jump at the start of the year

Chris Scicluna
Emily Nicol

Japanese IP fell sharply at the start of the years as autos production went into reverse
Today’s Japanese data provided mixed messages about activity at the start of the year. Most strikingly, industrial production fell well short of expectations in January, with the 4.6%M/M decline the steepest for eight months taking the level to its lowest for a year and roughly 7½% below the pre-pandemic benchmark in February 2020. The weakness was largely driven by the autos sector (-10.1%M/M) amid more binding supply constraints, while semiconductors, production machinery, and electronic parts and devices were also a non-negligible drag on production at the start of the year too. While manufacturers anticipate a significant rebound in February, boosted in part by expectations of stronger Chinese demand following the Lunar New Year holiday last month, today’s outturn raises the risk of another disappointing quarter for Japanese GDP growth.

Japanese retail sales jump at the start of the year
Encouragingly, today’s retail sales exceeded expectations, with the 1.9% monthly rise the strongest since the initial pandemic volatility in mid-2020, to leave sales up 6.3%Y/Y and almost 7% above the pre-pandemic level, albeit still below the pre-consumption tax hike peak in September 2019. The improvement in sales at the start of the year was widespread, with the strongest growth in motor vehicles, clothing and household appliances. In contrast, fuel sales fell back likely reflecting a drop in gasoline prices. Indeed, when adjusting for prices, total sales volumes were still down compared with a year earlier, although the pace of decline softened significantly to -0.8%Y/Y from -3.3%Y/Y in December.

Underlying price pressures perhaps near the peak in Japan
While last Friday’s CPI release saw the headline and the BoJ’s forecast measure of core CPI (excluding fresh foods) jump to their highest since 1981, today’s BoJ estimates of other underlying inflation estimates perhaps hinted that price pressures had peaked. Indeed, the share of the CPI basket with prices rising compared with a year earlier slipped back very slightly in January for the first time in five months, although the share remained at an historically high 80%. So, contrasting with the upwards trend in the core CPI rates, the BoJ’s 15% trimmed mean CPI measure moved sideways at 3.1%Y/Y, admittedly a series high. And the weighted mean CPI estimate fell back in January, by 0.3ppt to 1.1%Y/Y. So, with headline inflation set to fall back sharply this month reflecting the government’s household energy bill subsidies, we might well see underlying price pressures start to ease back over coming months too.

Flash French and Spanish inflation estimates come in firmer than expected in February
Contrasting markedly with the drop in yesterday’s Belgium inflation, this morning’s flash February inflation estimates from France and Spain came in a touch stronger than expected, reinforcing our view that risks to the magnitude of the anticipated drop in the aggregate euro area inflation (data due Thursday) are skewed to the upside. In particular, French inflation rose for the second successive month in February, with the EU-harmonised rate up 0.2ppt to 7.2%Y/Y, a fresh series high and the national CPI measure similarly up 0.2ppt to 6.2%Y/Y, matching the near-37-year high recorded in October and November last year. Within the detail, INSEE reported that the uptick was driven by an acceleration in food (to a new high of 14.5%Y/Y) and services inflation to 2.9%Y/Y, reversing the 0.3ppt drop in January. Core goods inflation also edged up with the end of winter discounting, contrasting with a notable moderation in energy inflation as the effect of the increase in regulated electricity tariffs was more than offset by lower petrol prices.

Contrasting with an anticipated easing, Spanish inflation similarly ticked higher in February, with both the national and harmonised measures up 0.2ppt to 6.1%Y/Y. Spain’s statistical office INE noted that this in part reflected higher electricity and food prices despite the government’s tax cut of key staples, which in part offset a sizeable drop in petrol and transport services costs. But the national core CPI rate (excluding fresh food and energy) also trended higher to 7.7%Y/Y.

US advance goods trade numbers and various sentiment indicators due
In the US, a number of releases today includes the advance goods trade numbers for January, which are expected to show that exports maintained a downwards trend at the start of the year, with imports expected to have fallen back too. There are various sentiment indicators due this afternoon too, including the Conference Board consumer confidence survey, Richmond Fed business conditions indices and the Dallas Fed services index, while the FHFA and S&P CoreLogic home price indices for December will also be published.

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