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Another rate hike this month amid still rising inflation and unanchored inflation expectations


Manufacturing fell sequentially for the fifth consecutive month, while core retail sales increased for the first time since August. Retail sales increased 1.2% yoy in January (-1.7% in December), above the Bloomberg market consensus of a 1.5% contraction and our -0.7% call. Core retail sales (excluding fuels and vehicles) expanded 2.8% YoY (-1.8% in December), increasing 2.6% (SA) from December to January. Meanwhile, manufacturing contracted by 1.1% MoM/SA, building on the 1.9% contraction in December. In annual terms, manufacturing grew a mild 0.2% (from 0.5% previously), between the 0% Bloomberg estimate and our 1.5% forecast. The data is consistent with a 3.7% YoY increase for the coincident indicator in January (1.3% in the previous month), to be released on Friday.

Manufacturing now sits around 13.1% above pre-pandemic levels, down from a +17.9% peak in August last year as the economy slows. During the quarter ending in January, manufacturing increased 1.8% YoY, moderating from the 3.4% expansion in 4Q22. At the margin, manufacturing contracted 1.1% from December (-1.9% previously), resulting in a -9.0% contraction qoq/saar, deeper than the 5.0% contraction in 4Q22 (+3.6% in 3Q22).

While retail sales gained sequentially in January, activity levels remain below recent highs. Core retail sales sit 14.5% above pre-pandemic levels. In the quarter ending in January, retail sales expanded 0.2%, from 0.5% in 4Q22, while core retail sales grew 0.2% (0.7% contraction in 4Q22; +6.3% in 3Q22). At the margin, core retail sales retreated 9.0% qoq/saar, (down 7.1% in 4Q22).

We expect the economy to slow to 0.6% in 2023, from 7.5% last year. High interest rates, weaker global growth and elevated policy uncertainty all point to an activity slowdown this year.

Vittorio Peretti

Carolina Monzón