Sales at U.S. retailers such as Target and Amazon sank 1.9 percent in December — the biggest drop in 10 months — as the Omicron variant spread like wildfire and shoppers confronted higher prices and shortages of some popular products.
Yet retail sales were up 14.4 percent YoY in December, seasonally adjusted, as shown in the FRED graph. Retail sales are still booming, so what should we worry about in 2022?
There are two reasons to worry: the Omicron variant and rising inflation (hence interest rates). Inflation as measured by the retail CPI index has risen 7.1 percent in December YoY, its highest rate in 40 years.
But they are really connected, and curing the Omicron variant will also cure the inflation problem.
And as of January 12, 2022, the current 7-day moving average of daily new
COVID cases (782,766) increased 33.2% compared with the previous 7-day moving
average (587,723). A total of 63,397,935 COVID-19 cases have been reported
in the United States as of January 12, 2022, so the Omicron variant infection rate isn't subsiding.
And the high inflation rate is causing the Fed to begin to tighten credit with the first of its predicted interest rate hikes in March. But not everyone is in agreement with that move.
Chinese President Xi Jinping, of all people, asked Fed Chair Jerome Powell at the Davos Switzerland virtual economic summit to please not lift interest rates just yet!
“If major economies slam on the brakes or take a U-turn in their monetary policies, there would be serious negative spillovers. They would present challenges to global economic and financial stability, and developing countries would bear the brunt of it,” said Xi, according to a transcript of his remarks on Monday.
(China is gearing up for the Winter Olympics and doesn’t want our Federal Reserve rocking the economic boat right now.)
I don’t believe inflation will be as much of a problem this year because experts expect Omicron variant infections to quickly subside by mid-year, so-much-so that it will become more flu-like in its effects and be treated like an annual problem.
Inflation won’t be the problem it was in the 1970s, since it came on so suddenly due to the pandemic and the shortage of goods, rather than from a decade-long wage-price spiral.
The Omicron variant is keeping people from returning to work, and countries from untangling their supply chains.
So no, this isn’t the time to worry about inflation, which is a sign of
robust economic growth and consumers with lots of savings from the pandemic aid
packages.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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