Retail sales grew miserable 1.1% in July, a marked deceleration from the average 6% growth in H1/00. There are three main factors behind the low number: July 2000 has one fewer working day than July 1999 which took out 1 percentage point of growth. More significantly, sales of cars and of petrol both fell by almost 5% in real terms. Thus, surging petrol prices - up by 30% in last year - took their toll, as consumers became more careful with expensive petrol. Last, supermarkets saw their sales almost stagnant in July (+0.6%), after two years of swelling sales.
It would be premature to draw conclusions from one monthly number but is seems that a mix of high oil prices, slow wage growth and supermarket saturation leads to more cautious spending. We maintain, however, our forecast of the retail sales growth for 2000 (4.5-5.0%). As monetary policy is concerned, there is nothing important in today's number. It might, however, have an impact on public budgets as falling oil sales indicate falling excise taxes and weak domestic demand would undermine VAT revenues. Budget deficit might then turn up higher than expected.