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Have US retail sales been hit by stubbornly high inflation?

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Did US retail sales continue to grow in April?

US retail sales are expected to have grown last month, in a sign that consumers have not yet been discouraged by stubbornly high levels of inflation.

Economists polled by Reuters forecast that US retail sales rose 0.7 per cent month-on-month in April. Sales excluding motor vehicles and car parts are expected to have climbed 0.3 per cent, after rising 1.1 per cent in March.

Higher prices and consumers’ willingness to spend were probably the main reason for the jump in sales last month, said Oren Klachkin, lead US economist at Oxford Economics.

Although inflation moderated in April, the consumer price index still remained at a four-decade high as it jumped to an annual pace of 8.3 per cent in April from 8.5 per cent in March. Retail sales are not adjusted for inflation, which may have boosted some of the gains, Klachkin added.

“While retail sales are up 27 per cent since the pandemic started, our estimates show that inflation-adjusted retail sales are up only 7 per cent over the same time,” said Klachkin.

The categories to watch will be autos and petrol, according to James Knightley, chief international economist at ING. “Given new car prices were higher in the CPI report this component should post a decent rise in nominal sales,” said Knightley. “Gasoline will face a headwind since demand is pretty inelastic and according to the CPI report prices were down 6.1 per cent month-on-month.” Alexandra White

Has the new energy price cap lifted UK inflation even higher?

UK inflation is expected to continue its steep upward trend in the coming months, staying well above the Bank of England’s target of 2 per cent.

Annual consumer price growth hit a fresh 30-year high of 7 per cent in March, boosted by higher energy prices. However, ‘core’ inflation, which excludes energy, food and tobacco, also topped analysts’ estimates at 5.7 per cent.

With the Ofgem energy price cap rising by 54 per cent in April, the reading for last month is expected to have jumped to the highest since comparable records began in 1989. Economists polled by Reuters forecast an overall CPI figure of 9.1 per cent, with core inflation up to 6.2 per cent.

Line chart of Forecast for 2022, by date of forecast, annual % change showing Economists are revising down their UK growth forecast for this year as inflation rises

“A further substantial jump in inflation is virtually a given for April’s figures,” said Sandra Horsfield, economist at Investec.

The increase in the energy cap will push up inflation by 1.6 percentage points, Horsfield calculated, but price pressures are intensifying from various sides — with VAT on the hospitality sector reverting from its temporarily reduced rate of 12.5 per cent to the full 20 per cent rate at the start of the month, a rise in telecoms and water bills and higher transport fuel.

She expects annual inflation to climb to 9.1 per cent and core inflation to jump to 6.3 per cent when the data are released on Wednesday.

Earlier in May, the BoE forecast that consumer inflation will peak in the autumn at about 10 per cent, possibly plunging the economy into a recession. Economists polled by Consensus Economics have consistently revised down their economic growth forecasts for this year after Russia’s invasion of Ukraine stoked price pressures even further.

High inflation will be a “major concern to individuals and policymakers for some time,” said Horsfield. Valentina Romei

How will recent crypto jitters impact retail investor sentiment?

Retail investor sentiment towards speculative assets has soured this year as surging inflation, interest rate rises and geopolitical uncertainty collectively stoke fears over global growth.

In a trading environment characterised by volatility, the air has hissed resoundingly out of high-growth stocks that were among the biggest winners of the early days of the pandemic — from interactive fitness company Peloton to streaming giant Netflix.

But it is the $1.3tn cryptocurrency industry that has abruptly shaken financial markets in recent days. The price of bitcoin, perceived as a gauge of investor sentiment towards speculative assets, fell to just $25,390 on Thursday — more than 60 per cent below its peak of almost $70,000 in November.

That drop came after crypto was hit by one of its biggest challenges to date, when stablecoin Tether — a critical tool in the digital token universe — briefly failed to maintain its pledged one-to-one link with the US dollar.

The question now is whether the jitters sparked by Tether snapping its dollar peg will compound retail investors’ broader concerns about so-called risk assets. Tether’s tumble, which stemmed from a bout of intense selling pressure, came just days after the failure of smaller competitor TerraUSD.

“The cryptocurrency market is feeling the shockwaves from stablecoins and is being tested to its very core,” said Saxo Bank’s head of equity strategy Peter Garnry, with “signs of panic and massive selling pressures.” Garnry added that there is a “huge overlap of people that invest in both Tesla, Ark Invest funds, and cryptocurrencies and that makes this risk cluster dangerous because it becomes a forceful negative feedback loop on the downside.”

Analysts say contagion from recent crypto ructions could hit riskier assets in regions beyond the US and Europe. According to JPMorgan, “newer Japanese retail investors dating from Covid-19 hold not just equities but also speculative assets” and “the recent sell-off in cryptocurrencies is depressing the risk appetite of these mostly short-term investors.”

The US bank added: “We think the deteriorating performance of retail investors’ cryptocurrency holdings could indirectly dampen their enthusiasm for Japanese stocks.” Harriet Clarfelt

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