Retail sales have become a bellwether of the economy, and consequently for the movement of currencies. Additionally, they can swing market sentiment, particularly if it’s a major economy that’s reporting. Tomorrow there are two currency majors reporting the latest figures, and that could shake up their respective pairs a bit.
Retail sales figures are particularly important now that fuel prices are coming down. The underlying components show how the consumer side of the economy is being impacted by inflation. Central banks – particularly relevant to the data tomorrow, the BOE and BOC – are going all-in on fighting inflation. Demand is one of the driving forces of inflation.
Balancing the factors
One of the things that can lead to confusion in the current environment is that some countries adjust for inflation in their surveys and others do not. The UK, for example, publishes inflation-adjusted retail sales data, while Canada (like their neighbor to the south) does not. Given how high inflation is among the reporting countries, this can lead to some very uneven numbers, which needs to be taken into context.
The main issue for now is volume. Are consumers buying more, or simply spending more? If consumers are spending more, even if volumes aren’t going up, it could mean the situation isn’t so dire. And if inflation gets under control, then volumes can potentially increase and the economy right-side. But, if retail sales are going down, and volume is going down, it could mean that consumers are simply running out of money, and that can imply a recession is imminent. Like the BOE already warned.
What’s in the data? UK July retail sales are expected to show a monthly decline of -0.2% compared to -0.1% in the prior month. On an annual basis, however, the decline is expected to narrow th -3.3% compared to -5.8% prior. But this is likely explained by slowing sales last year as the delta variant took hold in the summer. The acceleration to the downside in the monthly figure might worry investors more.
UK July retail sales excluding fuel are also expected to see a -0.2% decline compared to 0.4% increase in June. In other words, the immediate spending impact of fuel is starting to diminish. Compared to the prior year, retail sales ex fuel are expected at -3.3% compared to -5.8% in the prior reading.
How does Canada compare?
Canada’s expected figures are dramatically different, because they aren’t adjusted for inflation which last came in at an annual rate of 7.6%, and a monthly rate of 0.1%. Canadian monthly retail sales are expected to have increased by 0.3% compared to 2.2% in the prior month (reflecting the improving inflation situation). Annual retail sales are expected to have grown 9% compared to 14.1% in the prior report. Again, the annual comparables likely due more to covid effects last year, than the current situation.
