The markets had anticipated a marginal gain of just 0.1% m/m in June but retail sales came in at an impressive 0.6%, bouncing back from -0.9% in May. Most sub-categories recording stronger activity in June.
The US tariffs appear to have had a significant impact on retail sales, as consumers continue to time their purchases to minimize the effect of tariffs.
Consumers increased spending ahead of the tariffs and cut back once the tariffs went into effect. With a truce in place between the US and China which has slashed tariff rates, consumers opened their wallets and purchased more on big-ticket items such as motor vehicles, which jumped 1.2% in June.
With Trump threatening new rounds of tariffs against allies such as Canada and Japan on August 1 if no agreements are reached, it will be interesting to see if consumer spending reverses direction next month.
Japan’s inflation rate expected to ease
This week, the US and UK posted higher inflation numbers for June, but Japan is not expected to follow suit. Headline inflation is projected to drop to 3.3% y/y from 3.7% in May and core CPI, which is closely watched by the Bank of Japan, is expected to drop to 3.3% from 3.5%. If inflation is higher than expected, it will raise expectations for a rate hike from the BoJ in the fourth quarter.
