Live Comments

UK retail sales volumes fell -0.5% m/m in July, matching expectations, after June growth was revised down from 1.0% to 0.7%. May was revised slightly higher to 1.3%. On an annual basis, sales growth slowed from a revised 3.8% to 1.6%, missing expectations for 2.2%. Despite July’s setback, volumes were still up 1.1% in the three months to July compared with the previous three-month period.

Weakness was concentrated in non-food categories. Non-food store sales fell 1.3%, with clothing, household goods and department stores all softer. Retailers said earlier promotions had pulled some demand forward into June, while hot weather reduced footfall and weighed on demand for certain products. Non-store retailing also fell back after a promotion-heavy June, although volumes remained above May levels. Food stores provided some offset, helped by hot weather and World Cup-related demand for supermarket goods, alcoholic drinks and beverages.

Overall, July looks more like a payback after a strong June than a sharp deterioration in consumer spending. Sales volumes remained at their second-highest level since April 2022, while the positive three-month trend suggests underlying consumption is still holding up despite weaker monthly momentum.

Data Summary

June monthly growth was revised from +1.0% to +0.7%. June annual growth was revised from +4.2% to +3.8%.

Key Takeaways

• UK retail sales volumes fell 0.5% m/m in July, matching expectations after June growth was revised down to 0.7%.
• Annual growth slowed from a revised 3.8% to 1.6%, missing expectations for 2.2%.
• Broader trend remained firmer than monthly headline. Sales volumes rose 1.1% over three months to July compared with previous three months.
• Non-food store volumes fell 1.3%, with weakness in clothing, household goods and department stores.
• Earlier promotions brought some spending forward into June, making July decline partly a timing effect rather than clear deterioration in demand.
• Hot weather also weighed on clothing footfall and some furniture demand.
• Food-store volumes rose, helped by hot weather and World Cup-related spending.
• Total retail volumes remained at their second-highest level since April 2022, supporting view that July was a pullback after strong May and June rather than start of a sharp consumer downturn.

Full UK retail sales release here.

Japan’s inflation pressures strengthened in July, with headline CPI rising from 1.6% to 1.9% y/y, above 1.7% expected, while core CPI excluding fresh food accelerated from 1.6% to 1.8%, matching consensus. More importantly for underlying inflation, core-core CPI excluding fresh food and energy rose from 1.7% to 1.9%, bringing it close to BoJ’s 2% target even as core CPI remained below target for a seventh consecutive month.

Composition suggests pressure is broadening rather than coming solely from energy. Food excluding fresh items rose 3.0% y/y, only slightly slower than 3.1% in June. Services inflation picked up from 1.1% to 1.2%, consistent with gradual pass-through of higher labor costs. Goods prices remained firmer at 2.7%. Energy inflation also turned positive, moving from -0.4% to 0.6%, with propane gas and kerosene rising sharply even as electricity and gasoline prices remained slightly lower from a year earlier.

That mix matters because imported inflation risks are rebuilding just as domestic price pressure is becoming more persistent. Weak Yen continues to raise raw-material costs, while renewed Middle East tensions and higher crude prices threaten another increase in Japan’s energy import bill. Recent PMI data add to the picture: manufacturing and services both strengthened in August, while firms reported output-price inflation near record highs despite some easing in input-cost growth.

For BoJ, July CPI strengthens case for another rate increase at September 17–18 meeting. Core CPI is still below 2%, but core-core inflation at 1.9%, firmer services prices and renewed energy pressure make it harder to argue that inflation is fading cleanly. With private-sector activity strengthening at same time, conditions are supportive of a move from 1.0% to 1.25%, while focus will then shift to whether BoJ is prepared to accelerate tightening pace beyond roughly two increases a year.

Data Summary

Key Takeaways

• Japan headline CPI accelerated from 1.6% to 1.9% y/y in July, beating expectations for 1.7%.
• Core CPI excluding fresh food rose from 1.6% to 1.8%, matching consensus and marking second straight monthly acceleration.
• More importantly, core-core CPI excluding fresh food and energy rose from 1.7% to 1.9%, pointing to firmer underlying inflation rather than an energy-only rebound.
• Services inflation edged higher from 1.1% to 1.2%, suggesting gradual pass-through of labor and domestic cost pressures.
• Food excluding fresh items remained elevated at 3.0%, while goods inflation stood at 2.7%.
• Energy inflation swung from -0.4% to 0.6%, with higher kerosene and propane costs adding fresh pressure.
• Weak Yen and renewed Middle East-driven energy costs remain upside risks to import prices, while government subsidies continue to restrain parts of headline inflation.
• For BoJ, mix strengthens case for a September 17–18 rate hike: underlying inflation is approaching 2% just as private-sector activity is strengthening.

Full Japan CPI release here (in Japanese).

Japan’s private-sector expansion strengthened in August, with PMI Composite Output rising from 52.7 to 53.4, its fastest increase in output since February. PMI Services Business Activity improved from 51.2 to 52.3, while PMI Manufacturing climbed from 54.5 to 55.1. PMI Manufacturing Output remained especially strong at 56.1, only slightly below July’s 56.3, confirming factories continued to lead overall growth.

Demand details were particularly firm. S&P Global said manufacturers recorded sharp increases in production and new orders, while total sales and overseas demand rose at the fastest pace in more than eight-and-a-half years. Semiconductor and AI-related industries remained key sources of new business, strengthening evidence that Japan’s factory sector is benefiting from sustained technology investment and external demand. Employment also increased further, while overall business confidence improved.

Cost pressures eased slightly but remained elevated. Input-price inflation slowed to a five-month low, though firms still cited Middle East-related supply-chain disruption, higher energy costs and weak Yen as important drivers. Output-price inflation nevertheless stayed close to a record pace, suggesting companies remain reluctant to ease pricing while costs are still high. Overall, August PMI points to a stronger growth backdrop led by manufacturing, but persistent price pressure keeps inflation risks relevant alongside improving activity.

Data Summary

Key Takeaways

• Japan PMI Composite Output rose from 52.7 to 53.4 in August, marking the fastest increase in private-sector output since February.
• PMI Services Business Activity improved from 51.2 to 52.3, showing services growth gained momentum.
• PMI Manufacturing climbed from 54.5 to 55.1, while PMI Manufacturing Output stayed very strong at 56.1.
• Manufacturing remained the main growth engine, with sharp increases in production and new orders.
• Total sales and overseas demand recorded their strongest increase in more than eight-and-a-half years, supported by semiconductor and AI-related industries.
• Employment rose further and business confidence improved, reinforcing the broader expansion signal.
• Input-cost inflation eased to a five-month low, but remained elevated due to Middle East-related supply disruption, energy prices and weak Yen.
• Output-price inflation stayed near record highs, suggesting firms are still passing through elevated costs.
• Overall, August PMI points to stronger growth with persistent pricing pressure, keeping both activity and inflation relevant for BoJ outlook.

Full Japan PMI flash release here.