US: Retail sales, gas prices and warming inflation phenomenon


By consensus, the loss of momentum in retail sales is inevitable, especially as inflation rises rapidly and households begin to rethink their budgets and decide to cut discretionary spending. After the upwardly revised 4.9% increase in January, the value of total retail purchases increased by 0.3%. Excluding automobiles, gasoline, building materials and food services, a metric that gives a clearer view of the trend, sales fell 0.4%, down from the previous revised sharp 6.7% increase.


If we look at the sub-items; The progress in February was led by a 5.3% increase in gasoline expenditures. Excluding gas stations, sales fell 0.2% last month. It is worth noting that these figures are not adjusted for inflation. Seven of the 13 retail categories grew in the past month. Apart from gas stations, restaurants and bars, motor vehicle dealers and shops also rose. Non-store retailers, the second-largest sales category and fluctuating month-to-month, pulled back after a surge at the start of the year. Food, electronics stores and personal care products also fell in February. Control group sales, which are used to calculate gross domestic product and exclude food services, auto dealers, building materials stores and gas stations, fell 1.2% month-on-month in February.


In the inflation-adjusted consumer spending data, we will see that discretionary spending will now be under serious pressure due to inflation. The Russian invasion of Ukraine has driven gasoline prices to record highs and is contributing to broader cost pressures through rising commodities. Of course, since this increase will be reflected on the food and energy side with the Russian crisis, a price pressure will be encountered that will hurt more than the price hikes until February. Pump prices rose 6.1% in February, or 6.6% in seasonally adjusted CPI. In March, a gas price hike effect is expected to potentially reflect over 20%. The comforting phenomenon is that households with the unemployment rate falling to 3.8% and the ability to earn permanent income are economically stronger than in the Covid period. However, inflation reduces the effect of increasing income and the ability to consume.


From the Fed’s point of view, there are no details that will change the picture. Inflation is unavoidably high and it can certainly increase the potential to create a demand shock on economic growth. It is expected that the Fed will make a statement on thin technical balances and stick to the base scenario.

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