Inflation in the United States may have surged to a 30-year high in October, but that didn’t stop consumers from spending up a storm last month as Americans got a jump start on the holiday shopping season.
Sales at retail stores, online and at restaurants in the world’s largest economy increased 1.7 percent in October compared to the previous month, the US Department of Commerce said on Tuesday. That was the biggest gain since March and marked the third straight month of rising retail sales.
Compared to the same period last year, retail and food services sales advanced 15.4 percent in October.
Supply chain snarls as well as shortages of raw materials and workers have been raising prices this year for US businesses, which in turn have been passing those higher costs on to American consumers.
Last month, US consumer prices jumped a blistering 6.2 percent from the same period a year ago, the US Department of Labor said, marking the sharpest acceleration in consumer prices in three decades.
That matters tremendously to the health of the US economy because consumer spending drives two-thirds of the nation’s growth. And some are concerned that mounting inflation could downshift the engine of the US economy.
Consumers tend to spend more when they feel more confident about the outlook for the economy and their own financial prospects. Rising inflation and the perception that not enough is being done to contain it helped drive US consumer confidence to a 10-year low in November, the University of Michigan said in its latest survey.
But with US households still flush with more than $2.5 trillion in savings amassed during the coronavirus pandemic, Americans managed to spend at a faster clip than expected in October.
“An improving Covid situation, easing supply constraints in the auto sector and an early start to holiday shopping all boosted purchases last month,” said Oxford Economics Chief US Economist Gregory Daco in a client note. “Households were still willing to open their wallets in the face of higher prices – which inflated nominal sales figures – but there is increasing evidence that higher inflation is eroding purchasing power.”
While more affluent households have a bigger income cushion to absorb inflation, low-income households are being hit especially hard. Consumers can respond to higher prices by delaying purchases of non-essential items, but there is no putting off shelling out for essentials like food on the table, gasoline, heating, and a roof overhead.
Food spending alone gobbled up 27 percent of household budgets for the lowest-income Americans last year, according to the US Department of Agriculture.
One way consumers can react to higher prices for essentials is to substitute purchases for lower-cost options.
The nation’s – and the world’s- largest retailer, Walmart, known for its bargain prices, said on Tuesday that its online sales and sales at its US stores opened at least a year increased 9.2 percent in its third quarter ending October 29, even though its costs had climbed. The retailing giant also said it grabbed a bigger share of the US grocery market and that more shoppers are returning to its stores.
Even though consumers are searching for bargains to weather the inflation storm, analysts still see the economic recovery staying on track, thanks to climbing wages, an improving jobs market, and declining COVID-19 infections and restrictions.
“As the economy heads into 2022, an improving health situation should reinvigorate consumer confidence while a strengthening jobs recovery and strong wage gains should support income growth,” said Daco.