U.K Retail Sales

United Kingdom (Thursday, 14th June to Friday, 15th June 2007)

14/6 Retail Sales (May)
Spending on Britain??�s high streets was weaker than expected in April. Instead of expanding by 0.6% as the consensus had been anticipating, retail sales volumes fell 0.1%. That said, a partial offset came in the form of an upward revision to March??�s increase from 0.3% to 0.5%. Sales by food stores increased by 0.2% for the second month in a row, but these were countered by a 0.5% decline in non-store sales. But with clothing and footwear sales again up strongly (0.9% after 1.0% in March), the weakness was due mainly to a 3.0% slump in sales by household goods stores. Once again we would put this correction down to consumers walking away from retailers in this sub-sector deciding to push up prices (1.2%) in March. In spite of last month??�s slight decline, the threemonth on three-month rate of change in overall retail sales rebounded from 0.5% to 1.2%. This led the ONS to conclude that retail spending remains buoyant. Certainly barring further falls in May and June, the increase in volumes for the second quarter as a whole should be larger than that in Q1. However, we continue to question the likelihood that retailers will be able to make price increases stick. Real household disposable income fell in the final quarter of last year, whilst in the first quarter of this year average real take-home pay was 1.0% lower than a year ago. And with employment now falling and higher interest rates driving up mortgage debt servicing costs, we believe the consumer will remain resistant to any sustained uplift in prices. The consensus expects retail sales volumes to have risen 0.2% in May.

United States (Thursday, 14th June to Friday, 15th June 2007)

15/6 Consumer Prices (May)
The inflation data for April were benign. Overall consumer prices rose 0.4% on the month, compared with 0.6% the previous month and a central market expectation of 0.5%. Moreover, with energy prices rising a further 2.4% (after 5.9% in March), core prices, which exclude food and energy, rose a modest 0.2%. This enabled the core annual rate to edge lower from 2.5% to 2.4%, an elevenmonth low. Some commentators have suggested that this deceleration isn??�t happening quickly enough. However, notwithstanding the fact that the annualised rate over the last six months is down to 2.1%, the Federal Reserve??�s preferred measure of underlying inflation is in fact the core personal consumption expenditure deflator, which fell to 2.0% in April. We therefore believe that the Fed was doing nothing more than playing it safe when, in its last FOMC statement, it stated its primary concern was that inflationary pressures may not ease as quickly as expected. Financial markets expect overall consumer prices to have risen 0.6% in May, and by 0.2% excluding food and energy.