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A contractionary monetary policy and high inflation will likely dent consumption dynamics ahead

Vittorio Peretti & Carolina Monzón


Core retail sales grew at the margin in October, while manufacturing posted a mild decline. Retail sales increased a mild 1.9% yoy in October (7.1% in September), between the Bloomberg estimate of 3.5% and our 0% call. Core retail sales (excluding fuels and vehicles) increased 0.2% (SA) from September, the third consecutive monthly increase, and contracted 0.6% yoy (5.7% in September) amid more demanding base effects. Meanwhile, manufacturing fell sequentially for the second consecutive month (0.6% drop, sa), leading to a 5.3% yoy gain (6.7% previously), below the 6.9% Bloomberg estimate and our 7% forecast. The data is consistent with a 0.7% YoY increase for the coincident activity indicator in October (4.2% in the previous month), to be released next Monday). Overall, with activity still at elevated levels, inflation still on the rise and the current account widening, the central bank is likely to continue hiking rates. The next policy meeting will take place tomorrow when we expect a further 100bp increase to 12%.

Manufacturing now sits around 17.0% above pre-pandemic levels. The 5.3% annual growth was boosted by vehicles production (0.7pp), and chemical production (0.5pp). During the quarter ending in October, manufacturing increased 7.1% YoY, broadly stable from the 7.0% expansion in 3Q22. At the margin, manufacturing fell 0.6% from September (-0.2% in the previous month), but grew a 3.8% qoq/saar, similar to the gain in 3Q.

Retail sales sit 16.8% above pre-pandemic levels. The 1.9% YoY increase of retail sales in October was pulled up by other vehicles (2.0pp), auto parts sales (0.5pp) and fuels (1.8pp), partially countered by appliances and furniture (-2.3pp), likely affected by inflation pressures and COP weakness. In the quarter ending in October, retail sales expanded 5.6% from 7.6% in 3Q22, while core retail sales growth moderated to 3.5% from 6.3% in 3Q22 (11.1% in 2Q22). At the margin, core retail sales retreated 5.8% qoq/saar, moderating from the 7.5% downturn in 3Q22, following three consecutive sequential gains.

We see GDP growth of 7.7% this year, but risks are tilted to the upside following notable resilience during 3Q.

Vittorio Peretti

Carolina Monzón