Economics: Mixed Data on Consumption
Private consumption grew at a real 12 month rate of 3.3% during 2016, the strongest percentage increase since 2012 and an extension of a growth trend dating back to 2015. The report also reaffirmed this demand component’s role as the Mexican economy’s main growth driver throughout 2016.
But there are initial signs that the expansion in private consumption may begin to lose steam over the course of 2017 as its main precursors such as consumer credit, remittances and the formal sector wage mass are on track to slow during the second half of the current year while inflation has rebounded considerably.
A leading indicator of any potential change of direction in private consumption is monthly same-store sales data from the national retail association (Antad), whose average 12 month rate of growth narrowed from 4.3% at mid year to 3.6% for full year 2016 as they sputtered to diminished rates of 1.9% in December and contracted 0.6% in January 2017.
GEA looks for private consumption growth to slow to 1.5% this year, practically half the rate of 2016 (2.8%), which would entail private consumption essentially relinquishing its role as the main GDP growth catalyst.
In this week’s Economic Outlook section, we analyze the recent performance of consumption precursors and their outlook for 2017.
On a related note, the national statistics institute reported last week that consumer confidence plummeted 14.4% year on year in February, the thirteenth month of negative results. While sentiment began to soften since the beginning of 2016, it was not until the past two months that we have seen this indicator go into free-fall.
By way of comparison, the Consumer Confidence Index fell 4.0% on average during 2016 while in February of that year it softened by a mere 1.3%.
The government’s decision to implement a sharp increase in gasoline prices at the beginning of the year and the jump in the price of the basic basket appear to have had an especially pronounced impact on consumer perceptions during the first two months of the current year.
It is worth noting that the cost of the basic basket of consumer goods and services rose 0.69% compared to January, and 7.7% above levels of February 2016. At the same time, consumer prices overall increased 0.58% compared to January and by 4.86% on a 12 month basis.
The most significant pressure emanated from energy prices. Among energy sources the sharpest increase was recorded on gasoline prices, which rose 30.7% in the case of high octane and 26.0% for low octane gas. LP gas for home use also moved sharply higher during the month, climbing 31.1%.
The rise in goods inflation extended to both its food and nonfood components goods, which also sustained their role of past months as key drivers of headline inflation.
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