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ONS: May retail sales fall 0.5%

Consumers are taking a pause for breath. After some strong monthly increases, spending in high streets, shopping malls and online fell by 0.5%.

The City shrugged off the decline and it was right to do so. This does not portend the end of the recovery that has been under way for the past year or so.

Retail sales bounce around from month to month, and it is particularly tricky for the Office for National Statistics to adjust the raw data for seasonal factors in the months around Easter. The May fall followed strong increases in both April and March, with the increase in sales over the latest three months a strong 1.3%. That's a better guide to the underlying trend than one month's figures and dovetails with the latest snapshot of the state of manufacturing from the CBI. That too was upbeat.

Further increases in retail sales can be expected in the second half of the year, despite the continued squeeze on real incomes caused by prices rising more rapidly than wages. Unemployment is coming down and the strength of the pound – while making life more difficult for exporters – will make imports cheaper and bear down on inflation.

Indeed, the most interesting thing about the latest retail sales numbers was not the monthly drop in the volume of goods being sold, but the fact that consumers were paying 0.7% less for the stuff they were buying last month than they were in May 2013. Every sub-section of retailing apart from food saw falls in prices, and with the supermarkets going all out to grab market share, there is deflationary pressure in the pipeline here too.

In other words, there is not an awful lot here to make the Bank of England think it needs to hurry up and get interest rates higher. Inflation, on the basis of the data coming out of the high street, will remain low. True, an escalation of the crisis in Iraq could lead to higher petrol prices and domestic energy bills in the short term. But the longer-term impact, through a further erosion of discretionary spending power, would be deflationary.

Source : Larry Elliott -

19 June 2014
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