Mexico's retail sales growing at an impressive pace on lower inflation

Despite the growth weakness in H1 and the visible effect of the slowdown in the labour market, retail sales on average have continued to trend up this year - in part due to the low base effect in H1 2014, but mostly due to lower inflation this year. Retail sales growth will likely average a strong 5.1% yoy year-todate compared with 2.7% in 2014. The recent pace of retail sales is broadly consistent with 2- 4% yoy 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 its improvement. 

"Going forward, we expect some moderation in retail sales (primarily when the base effect of H1 14 ebbs) until growth improves and the labour market strengthens. However, falling inflation presents some upside risk to sales growth and overall consumption", notes Societe Generale.