Another part of the inflation puzzle is retail sales; probably the most important picture of consumer demand since consumers power some 70 percent of economic activity. Any decline in retail sales helps the Federal Reserve decide when consumer demand for goods and services cools enough to slow rising inflation, and hence interest rates.
So, its good news to see that retail sales dropped sharply in one month—from 15.5 percent in March 2022 to just 5 percent in April 2022 YoY.
That’s also when Putin began his invasion of Ukraine and food and energy prices began to surge. It’s a sign that consumers pay attention to inflation and are cutting back on spending of their own accord.
What the headlines don’t yet grasp is that retail sales flattened out in April, as did the 40-year spike in the Consumer Price Index, which has risen just 2 percent over the past three months.
Retail sales are rising at 7.7 percent YoY in September and are barely keeping up the with the 8 percent inflation rate. Total sales were flat rather than up 0.2% in September as we had expected, said Reuters:
“Retail sales are slowing as spending shifts back to services. Sales at auto dealerships slipped 0.4% last month, while receipts at service stations dropped 1.4%. Furniture store sales fell 0.7%, while those at building material and garden equipment retailers decreased 0.4%.”
A survey from the University of Michigan on Friday showed consumer sentiment improved further in October, but inflation expectations deteriorated a bit as average national gasoline prices moved towards $4 per gallon after falling over the summer.
“Continued uncertainty over the future trajectory of prices, economies, and financial. markets around the world indicate a bumpy road ahead for consumers,” said survey director Joanne Hsu. “The median expected year-ahead inflation rate rose to 5.1%, with increases reported across age, income, and education. Last month, long run inflation expectations fell below the narrow 2.9-3.1% range for the first time since July 2021, but since then expectations have returned to that range at 2.9%.”
It looks like consumers via their spending habits will know and be the first to tell the Fed when the inflation dragon has been tamed.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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