Retail sales growth fell behind inflation increases in February, posting a weak 0.3% increase, as growth slowed down in most categories except gasoline stations.
Consumer rationing because of rising gasoline prices already took place before the Russian invasion of Ukraine. Excluding sales at the gas pumps, retail spending dropped by 0.4% on the month, the Census Bureau reported on Wednesday.
Sales at gasoline stations, though, rose a sharp 5.3% in February from being down 1.7% in January.
The overall decline in monthly sales gains was expected as the significant pandemic-related shifts in spending behaviors over the holiday season distorted the seasonal factors contributing to the headline sales number.
January’s robust retail sales gain of 4.9% on a month-over-month basis proved to be a temporary rebound, following the sharp 2.5% drop in December because of early shopping in October and the omicron-led spending pullback in late December.
A similar pattern occurred about a year ago. After the second COVID-19 wave dragged retail sales down by 0.8% in December 2020, retail sales then rebounded immediately the following January at 7.6% and then fell again that February by 2.7%.
But the pattern won’t likely continue to repeat itself this March. What drove a whopping 11.3% increase last March was mostly because of the extra income from the second round of government stimulus, which won’t be the case this time around.
On top of that, the spike in energy prices as the result of the Russian invasion of Ukraine in early March will certainly dampen spending on core retail goods and services, while the negative spillovers on consumer confidence and uncertainties will most likely cause consumers to pull back on overall spending volume.
February’s report also showed the early signs of such a pullback. Excluding food services, gas, autos and building materials, the so-called control group—which feeds into the calculation of gross domestic product every quarter—fell by a sharp 1.2%.
Such gains were not enough to offset the increase in core inflation, which rose 0.5% in February according to the earlier report on the consumer price index from the Bureau of Labor Statistics. Note that the more precise way to measure the monthly price impact on sales data is to use the personal consumption expenditures deflator, which will be released two weeks from now.
Without any potential boost in income, it will be interesting to see whether consumers will tap into their trillion dollars of excess savings, accumulated since the pandemic hit, in the next couple of months. The historic amount of excess savings has been expected to be the key factor in driving growth this year. In the meantime, persistent inflation will continue to eat into that savings.
The report won’t deter the Federal Reserve from most likely raising interest by 25 basis points at its highly anticipated meeting on Wednesday afternoon. But the prospect of slower growth will certainly factor into the Fed’s course of action to tame inflation in the coming months.
Despite the quick turnaround of oil prices this week to the same level before the invasion, other commodity prices and food prices remain elevated.