Is Inflation Driving US Retail Sales Growth?


Rising inflation in the United States has been in the news for months. In February 2022, consumer inflation in the United States jumped to 7.9%. This is a 40-year high point, last seen in 1982 (see image below).

As a retail industry analyst, the key question for us is whether inflation is already driving up US retail sales growth – or is retail sales growth still volume-driven? To answer this question, we have looked at monthly inflation data from the US Bureau of Labor Statistics (BLS) for the past six years. We also saw US monthly retail sales data from the US Census Bureau. See our analysis in the chart below.

Inflation continues to rise in the United States

BLS data shows that inflation in the United States reached 7.5% in January 2022, rising to 1.4% in January 2021 and well above the US Fed target of 2.0% (see figure below).

Retail sales have doubled for most of 2021

If we compare U.S. inflation (a.k.a. Consumer Price Index 12-month percent change) with year-on-year growth in U.S. retail and food service sales, we notice that:

  • In the pre-COVID years (2019 or earlier), U.S. retail sales growth was largely higher than inflation growth – indicating an increase in retail volume.
  • During the March to May 2020 period, US retail sales growth was much lower than that of inflation – which refers to a decline in retail volumes during that period.
  • Since March 2021, U.S. retail sales have been growing in double digits. This growth is much higher than the rise in inflation. This refers to the increase in the retail amount due to the stimulus checks received by the US consumers from the government as well as the savings of the US consumers during the epidemic.

The gap between retail sales growth and inflation is narrowing

We believe that the difference between retail sales growth and inflation can serve as a good proxy for determining retail volume growth. If we calculate the difference between retail sales growth and inflation, we see that the maximum difference was in April 2021. However, since inflation has been rising and retail sales growth has been declining (see figure below) that gap has narrowed.

US retail sales so far are volume-driven – we’ll keep an eye on how they’re going

As of January 2022, the gap between retail sales growth and inflation is still large enough to indicate that, so far, retail sales growth has not been volume-driven and inflation-driven. However, if the gap widens further or moves to negative territory, it will mean a reduction in retail volumes and an increase in inflation-driven retail sales.

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