Despite the UK hitting the Bank of England’s 2% inflation target in May, retail sales data indicated a drop in purchases last month of 0.2% year-on-year in comparison to the 4.9% growth in June 2023. The report attributed the decline to unusually cold weather, which likely impacted sales of clothing and footwear as well as DIY and gardening products. Since the cost-of-living crisis has had consumers making more intentional purchases, food sales were also documented below the 12-month average growth of 5.5%.
The Bank of Japan’s policymakers said that wage growth is spreading across their economy thanks to tight labour market conditions off the back of a shrinking population. Data showed that average pay in Japan increased by 2.5% in May following the Shunto wage talks, providing hope that greater spending power and consumer demand can push inflation to the Bank’s 2% target – and stay there. During their meeting, policymakers also noted that wage growth was not just apparent in large firms, but medium and smaller firms now too, with companies starting to filter these higher costs through to the services they are providing. Wage growth will be one of the main talking points when Bank members meet this month to decide on interest rates, with the market pricing in at least one hike at some point this year.
This morning, China’s consumer price index (CPI) came in showing price growth of 0.2% and missing expectations of a 0.4% rise. Core CPI, excluding volatile elements like food and energy, rose 0.6% year-on-year in comparison to the 0.7% expected. As the Chinese consumer is still taking time to build their confidence to spend their pandemic savings post-Covid, domestic demand in the region has remained at a low level. Amidst retailers offering discounted prices to entice shoppers, this latest data has the market speculating about the potential for more stimulus measures by policymakers to bolster consistent inflationary figures.
In France, a left-wing alliance put together shortly before the election has won the most seats in parliament, thwarting the National Rally’s plans for an outright victory and beating Macron’s administration by a relatively narrow margin. As no party won an outright majority, a hung parliament is now in effect in France and the ‘clarity’ Macron sought in initially calling the election is further out of reach than ever. Markets held up relatively well as they processed the election outcome, with the CAC-40 index actually closing 0.8% higher.
Over in Ireland, the government has agreed a budget package before upcoming elections. The package looks to increase public spending and so breaches policymakers’ own fiscal rules.
Still to come this week we have UK GDP, US initial jobless claims and CPI and Michigan consumer sentiment.
Nicola Tune, Portfolio Economist
