Americans increased their spending in retail stores in June, a sign that consumers are still opening their wallets even as inflation continues at a 40-year high.
Retail sales, a measure of how much consumers spent on a range of daily goods, including cars, food and petrol, rose 1% in June from the month before, the Commerce Department said Friday. Economists surveyed by Refinitiv expected sales to rise 0.8 percent. It marked a sharp increase from the 0.1% drop in May, which was revised up from the first report of a 0.3% drop.
The advance in June is not adjusted for inflation, which means that consumers may spend the same, but get less for their money. Taking inflation into account, retail sales are likely to show a modest but steady decline in recent months.
An explosion in gas station spending helped drive retail sales up: Gasoline sales rose 3.6% in June, when pump prices hit record highs in mid-June, with average gallons of petrol briefly peaking at $ 5. Prices have since fallen, hovering around $ 4.57 according to AAA.
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Sales of bars and restaurants, meanwhile, rose 1%, while online sales rose 2.2%. Sales of furniture and home stores rose 1.4 per cent. Consumers withdrew on spending in areas such as clothing, where sales in clothing stores fell 0.4% in June. Department stores had a decrease of 2.4 per cent.
“Consumers continue to absorb higher prices into non-discretionary categories like gas and postpone purchases into categories like appliances,” said Claire Tassin, retail and e-commerce analyst at Morning Consult. “Decreases in spending on clothing and department stores indicate that consumers are tightening their belts in some areas while coping through this difficult period.”
The data comes as consumers face the worst rise in inflation since 1981: The government reported earlier this week that the consumer price index rose 9.1% in June, much higher than economists expected. The reading underlined how sticky and persistent inflationary pressures in the economy still are – and raised concerns that higher prices are spreading throughout the economy.
Rising prices have dampened Americans’ confidence in the economy, and consumer sentiment fell in early June to its lowest level ever.
The Federal Reserve has been responding to the inflation crisis with the most aggressive action in decades, as it races to catch up with runaway consumer prices. Politicians approved a 75 basis point rate hike – the first since 1994 – in June on warmer-than-expected inflation data, confirming that another rise of that magnitude is on the table in July.
Experts are now raising the odds of an even bigger rate hike of 100 basis points at the end of the month following the grim inflation report in June and stronger-than-expected retail sales.
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“The market seems to be welcoming the news, although the strength of the retail trade could only add fuel to the Fed’s fire to continue its rate hike campaign to cool the economy and tame inflation,” said Mike Loewengart, CEO of Investment Strategy at E * Trade.