Aussie retail sales slumped by 3.9% in December. To put this into perspective, sales rose by 1.7% in November and the market was expecting sales to only fall by 0.3% in December. The number was a big slap in the face to those calling for more aggressive rate hikes this year.

As we wrote last week, there is a big lag in Australian inflation numbers and the full impact of recent interest rate hikes is now starting to flow through the market. The data was confirmed a few hours later in Germany, where similarly, retail sales slumped by more than expected in December, down 5.3% compared to expectations of a slight rise.

Retail sales numbers can move around a fair bit from month to month. They aren’t the most comprehensive or consistent data point, but they are a pretty good forward indicator of general growth and forward-looking inflationary expectations.

Aussie 2 year bond yields are now basically at the same level they were back in August last year. We’re well off the peak.

The Aussie and German numbers, out on the same day, could start to translate into a trend when taken together with US inflation, which printed lower than expected in December.

Bottom line: Interest rate rises are having an impact, there’s no enough data to suggest that consumer behaviour is changing. There isn’t enough data to suggest that inflation is under control, but these forward indicators will start to materialise (slowly) into lower inflation growth and at the moment, that’s all central banks are concerned about.

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Quicknote: Retail sales start to slip, higher…