As prices around the globe increase, consumers can buy less with the same amount of money. Some consumers have the capacity to increase spending. Either by borrowing money, getting a new job, or getting a raise. But, with average wages in most developed countries trending negative in real terms, generally consumers have less buying power.

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Basic economics dictates that as purchasing power decreases, so does demand. This phenomenon is called “demand destruction” when caused by inflation. Excluding monetary and fiscal policy, this provides a natural “break” on inflation. That could be a factor to help central banks in controlling inflation. Meaning that consumer spending could give us some advance warning when central banks could start easing off on the rate hikes.

What to look out for

Friday has an avalanche of data, as it’s the last day of the month and of the quarter. Here are the main data points relating to consumer behavior which could impact markets:

Japan: Is the odd one out of the global situation, because inflation hasn’t gone significantly above target, despite the deprecation in the currency. Consumer confidence appears to be staging a little bit of a rebound since the summer, and is forecast to increase to 34.0 from 32.5 in August. That would be the second consecutive month of gains

Germany: As prices rise, Germans are being forced to do something they are really loath to do: Dip into their savings. Real wages in Germany have remained negative, and Germans appear to be responding by closing their wallets. Monthly August German retail sales are forecast to switch to negative at -1% compared to +1.9% in July. Annual Retail sales are expected to come in at -5.1% compared to -2.6% prior.

Switzerland: Another country that has managed to avoid some of the upward price pressure, and retail sales have remained relatively stable through the year. Monthly fluctuations are natural, but a trend similar to the GDP growth rate is seen as generally not putting pressure on monetary policy. Monthly Retail sales are expected to increase to 0.6% compared to -0.5%. But annual retail sales are expected at 2.0% compared to 2.6% prior.

US: There are two important data points coming out for the US. First is Personal Spending, which is expected to expand. However, it should be noted that this figure is not adjusted for inflation, so increased spending is likely a reflection of Americans keeping pace with rising prices, and not necessarily a sign of increased demand. US August Personal Spending is expected to come in at 0.2% compared to 0.1% prior.

The University of Michigan Consumer Sentiment survey is seen as the most reliable measure of how willing Americans are to keep buying. As inflation has started to turn around mostly on the back of lower gasoline prices, it appears US consumers are willing to keep spending. But, that goes hand-in-hand with increased use of credit cards, as credit card debt is near a decade high level.

Michigan Consumer Sentiment is expected to expand to 59.5 from 58.2 prior.

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