By Jason Muscat, FNB Senior Economic Analyst.
April retail sales disappointed, expanding just 0.5% y/y and contracting -1.2% m/m. Of particular concern, the three month % change has now contracted for the third consecutive month. The sharp deceleration suggests that consumers may well have front-loaded purchases ahead of the April implementation of the VAT hike.
General dealers, food and beverage, clothing and hardware retailers contracted by -1% y/y, -5.5%, -0.5% and -0.9% respectively, shaving a full 1.1 percentage point off growth. Expansions of 6.2% y/y among pharmaceutical retails, 11% by furniture stores (albeit off a very low base) and 5.6% among “other retailers” only just dragged the headline number into positive territory.
Given the accommodative monetary policy backdrop, relatively benign inflation, continued evidence of household deleveraging and positive real wage growth, we would have anticipated better trading conditions for retailers, who may delay passing cost increases on to consumers in order to maintain headline momentum.
We will to wait to see if there is a normalisation in buying patterns in the May print, but evidence seems to be mounting that household consumption may not be holding up as well as we had expected in 2018.