Retail sales show softening demand

RETAIL sales rose by 4.1% in October year on year, figures released yesterday by the Central Statistic Office reveal.

Excluding motor trade spending the 12 month increase was 4.5%, the CSO added.

Compared with September the figures show a welcome softening in demand, said Austin Hughes, chief economist, IIB Bank.

In volume terms sales increased by 1.1% in October 2002 over the 2001 figure.

Again when the motor statistics are taken out of the calculation retail sales show an annual increase was of 1.6% for the period under review.

On a three month basis, regarded as a better indicator of trends, the August to October figures show a 2.8% increase compared to the three months ending July 2002.

Mr Hughes said the figures showed a “significant retract of the surprisingly large gains seen in the September data.

By comparison the October figures in volume terms dropped by 2.5% after the 5.8% monthly gain in the previous month of September, he said.

When car and petrol sales are excluded sales fell by 1.8% after a 3.1% rise in September.

Mr Hughes said the latest trends are consistent with an annual rate of increase in spending in real terms of roughly 2% in the final quarter of the year.

Overall he said the figures when fully stripped down are consistent with the evidence in the IIB Bank/ESRI index of consumer sentiment.

However, Mr Hughes said the cut in ECB interest rates last week might upset his 2% retail sales increase for the year.

With interest rates heading to below 3% early next year, when the ECB is expected to knock a further 0.25% off its key rate, it could well ignite another retail surge, warned Mr Hughes.

If that happens then the ESRI/IIB pointer to a more moderate consumer spend in the coming months might well be proved wrong, he said.

Underpinning that concern also is the fact that price inflation of around 5% and the low cost of borrowing “represents a powerful argument for increased levels of borrowing in the economy into 2003”, said Mr Hughes.