Solid growth in retail sales bodes well for Q3 GDP – ITEM Club

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  • But retail price inflation seems to be on the rise, which may restrict sales growth in the coming months
  • We are more optimistic further out as real incomes start increasing and help to fuel the consumer recovery

Nida Ali, economic advisor to the EY ITEM Club, comments on today’s retail sales figures:

“Retail sales have held up well in the face of a tough economic environment. Solid quarterly growth of 1% in sales volumes suggests that consumer spending in the third quarter remained strong, which bodes well for overall GDP growth in Q3.

“On the downside however, some of this strength is stemming partly from one-off factors such as increased sales of warm clothing due to the unusually cold weather in September, which should unwind next month. Moreover, the annual rate of retail price inflation, which had fallen drastically over the past year, could be on the rise again. Given that oil prices are expected to remain high in the near future, retail prices are likely to keep edging up and may restrict sales volumes in the coming months.

Mark Gregory, chief economist at EY added:

“Further out though, there are grounds for optimism. The gap between wage growth and the inflation rate has already narrowed to a large extent and, although inflation is likely to edge up slightly in the coming months due to temporary factors, it is expected to fall back to the 2% target by around mid-2013. This will help to improve individuals' spending power and therefore fuel the consumer recovery.”