Mexico retail sales growth point to strong consumption in 2015

Despite the growth weakness in H1 and some visible effect of the slowdown in the labour market, average retail sales have continued to trend up this year - in part due to the low H1 2014 base effect, but mostly due to lower inflation this year. Based on the September projection, retail sales growth would average a strong 5.3% yoy year-to-date compared with 2.7% in 2014. 

The recent pace of retail sales is broadly consistent with 3-4% growth in private consumption spending, although the correlation between retail sales and overall consumption growth is not quite strong enough. Strong sales growth in 2011-12 was not reflected in overall consumption, and more recently, consumption has lagged sales growth despite the latter's improvement. Nevertheless, consumption growth could continue to surprise this year thanks to low inflation. Once the effect of low inflation ebbs early next year, consumption acceleration will need support from the labour market. 

"We remain quite positive on the labour market and on the consumption outlook assuming some improvement in investment and export growth", says Societe Generale.