Falling inflation! Could the party be back on for ASX 200 retail shares?

Why are ASX 200 retail shares on fire today?

Sebastian Bowen

Author Bio Sebastian Bowen has been a Motley Fool contributor since late 2018. Sebastian found his passion for writing and educating others about shares and all things finance after completing his studies in political, economic and social science and enjoys bringing this passion to life at the Fool. His investment philosophy is a simple one – buying high-quality companies at prices that make sense. When he’s not researching his next investment at all hours of the morning, Sebastian enjoys classic movies and likes to unwind with a good book, newspaper or record. Areas of Expertise Dividend investing ETFs Education Bachelor of Political, Economic, and Social Sciences (Government and International Relations), University of Sydney Social Media X/Twitter Favorite Investment Quote "In the short run, the market is a voting machine, but in the long run, it is a weighing machine." – Benjamin Graham

Published January 13, 2023 2:47 pm AEDT

The S&P/ASX 200 Index (ASX: XJO) looks like it's about to end the trading week on a high note. At present, the ASX 200 is up another 0.73%, bringing its gains in 2023 so far to a rather impressive 5.57%. That's more than the index lost over the entirety of 2022. But ASX 200 retail shares are doing even better this Friday.

The S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) is one of the best-performing sectors on the share market today. And this is the sector that is dominated by ASX retailers.

Just take Lovisa Holdings Ltd (ASX: LOV). Its shares are up a stellar 3.34%. Premier Investments Limited (ASX: PMV), the name behind Smiggle, Peter Alexander and Jay-Jays, is up 1.66%.

JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings Limited (ASX: HVN) and Dusk Group Ltd (ASX: DSK) are also seeing some healthy green numbers.

So what might be giving this embattled sector a boost this Friday?

A group of people at a party look upwards to the camera as they celebrate the rise of ASX value shares — Image source: Getty Images

Why are ASX 200 retail shares on fire today?

Well, it's possible that the latest economic numbers out of the United States overnight have helped to boost sentiment. According to the US Bureau of Labor Statistics, America's consumer price index (CPI) fell by 0.1% over the month of December, largely on the back of cheaper fuel prices.

This brings the annual inflation rate in the US down to 6.5%. That's the lowest figure in more than a year.

Lower inflation might mean that the US Federal Reserve might not be forced to lift interest rates as high as previously anticipated. This could have an effect on our own Reserve Bank of Australia (RBA)'s interest rate plans.

And lower rates are generally good news for shares. Especially those in the consumer discretionary sector, as these companies generally thrive when customers have more disposable income to spend.

We also got some good news earlier this week regarding Australia's retail sector. On Wednesday, the Australian Bureau of Statistics (ABS) revealed that retail spending in Australia lifted by 1.4% in November to a record high.

Although this was attributed to the rising popularity of the Black Friday sales, it is still potentially a sign that Australian retailers are in a good space right now.

So it could be a combination of these factors that are boosting investors' confidence in ASX 200 retail shares as we round out the second trading week of 2023.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.