In 2015, Mexico’s retail sales expanded strongly due to the low base effect from 2014 and sharp low inflation. This pace is largely in line with private consumption growth of 3-4%. Retail sales growth had moderated surprisingly in December 2015 to 3.4% y/y, the weakest in the year. However, consumption growth is likely to moderate in 2016 from solid levels in 2015 as labor market stabilizes and inflation normalizes.
On month-on-month basis, retail sales in December declined sharply and are likely to grow 1.7% in January, maintaining retail sales growth near to late 2015 level at 3.7% y/y. The correlation between overall consumption and retail sales is not yet strong enough. Solid sales growth in 2011-2012 was not shown in overall consumption.
However, acceleration of consumption growth in 2015 was much better when compared to other components of demand. Once the impact of low inflation fades in 2016, private consumption acceleration will require help from the labor market.
At present, consumption and labor market are positive, assuming continued growth in exports and investment. However, the recent data implies that there are significant risks on the downside to the near-term growth trajectory. If growth weakens further and results in labor market stagnation, consumption is expected to be impacted when inflation returns to normal levels in 2016.
