Last year, Mexico’s retail sales rose 5.1% on low base effect of 2014 and lower inflation. This trend is expected to have highlighted in the first quarter of 2016 as inflation continued to decelerate. Based on February’s numbers and projection of sales growth of 4.8% in March, retail sales are likely to have expanded at stronger rate of 6.4% y/y in the first quarter, said Societe Generale in a research report. The expected rate is in line with consumption growth of more than 4%.
However, the correlation between growth in overall consumption and retail sales is not sufficiently strong. Even if retail sales projected consumption growth in 2014-2015, they were not successful in 2011-2012. After the low inflation effect fades in 2016, private consumption acceleration will be required to be underpinned by the labor market, noted Societe Generale. If growth softens because of weaker investment and exports growth, and results in labor market stagnation, consumption is expected to be impacted when inflation comes back to its normal levels in 2016, added Societe Generale.
