Europe's shoppers pull back: retail sales fell 0.7% in September

What happened

The volume of retail sales in the euro area fell 0.7% in September from August, Eurostat said on 6 November, far worse than the 0.1% fall economists had expected. Compared with a year earlier, sales were up only 0.4%. August was revised to a 0.4% rise.

Spending on non-food goods such as clothing, electronics and furniture fell 1.2%, and on food, drink and tobacco 0.3%. Only fuel sales rose, by 1.0%. Among the largest economies, sales fell 2.0% in Germany, 0.7% in the Netherlands, 0.6% in France and 0.4% in Spain; Italy edged up 0.1%.

Why an energy shock hits shops

An oil shock works like a tax on households in importing countries. People cannot easily drive less or stop heating their homes, so when energy costs more, they cut back elsewhere. The first things to go are purchases that can wait: a new phone, a sofa, new clothes. That is why non-food sales fell most while spending on fuel rose. Higher prices also mean the same money buys less, so measured volumes fall even if spending in euros holds up.

Germany's sharp fall stands out because its inflation fell to 2.8% in October after a fuel tax cut. That cut only started on 1 October, after this September data.

Why it matters for the ECB

Consumer spending is the largest part of the euro-area economy. Weak sales argue for caution on interest rates, while inflation at 4.0% in October argues for more rises. Several ECB policymakers have signalled a rise in December. This kind of data is what could make them hesitate.

Where it sits in the chain

An oil shock enters through prices (Link 1) and reaches the real economy (Link 5) when households have to cut other spending to pay for energy.

What to watch

• Retail sales for October, after Germany's fuel tax cut.
• The euro-area business surveys for November, later this month.
• The ECB's December meeting.