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Retail sales – hints of inflation in bagging area

Laith Khalaf

Retail sales data released by the ONS this morning show a rising trend, both in terms of the number of items bought, and the overall value spent by consumers in December. From Laith Khalaf, Senior Analyst, Hargreaves Lansdown.

Retail sales volumes were up 4.3 percent and the value spent was up 5.4 percent on December 2015. However sales fell between November and December 2016 (after adjusting for Christmas), which the ONS says may be down to rising prices. Fuel prices in particular rose by 9.7 percent over the course of the year, contributing to an overall 0.9 percent rise in average store prices, year on year. Online sales continued to go from strength to strength, with a 21.3 percent rise in sales, and now accounting for 15.1 percent of all retail spending (excluding fuel), up from 13.1 percent last December.

‘The retail sector saw a strong end to 2016, though there are hints that inflation creeping into the system could be starting to put the squeeze on consumers. Rising commodity prices and weaker sterling mean that household budgets are going to feel increasingly pinched at the petrol pumps and the food checkouts. Unless there’s a similar pick up in wages, that’s likely to dent consumer demand.

However, for the time being the robust growth in the retail sector towards the end of last year bodes well for overall UK GDP figures, due out next Thursday. One area which continues to go from strength to strength is online retail, which now accounts for more than £1 out of every £7 spent by consumers. This ongoing trend has changed the dynamics of the retail industry, and undermined the importance of a physical presence on the high street. The purely online clothes retailer ASOS posted 30 percent sales growth in the closing months of last year, and even more traditional players like John Lewis, M&S and Debenhams are making great strides in terms of online sales.

There’s more than one way to play the disruptive rise of the internet too, as supermarkets are building click and collect services to attract shoppers to their physical stores. To that end Sainsbury’s recent purchase of Home Retail Group has led to a slew of Argos concessions within Sainsbury’s supermarkets, likewise Morrison is rolling out hundreds of Amazon lockers to try to tempt customers through the door. We can expect the rising online trend to continue indefinitely, as retail therapy increasingly takes place via laptops, tablets and mobiles.’

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