Americans’ spending on stores and restaurants hit a new high in March as inflation hit a 41-year high

Americans continued to spend big throughout March, effectively avoiding inflation problems and pumping more fuel into the US economic engine.

Spending by retailers and restaurants rose 0.5% last month to a record $665.7 billion, the Census Bureau said Thursday. Economists polled by Bloomberg had expected sales to rise 0.6%. The print also showed a slowdown in spending from February’s 0.8% gain amid renewed inflationary pressures from the Russia-Ukraine conflict.

The February spending sum was revised to $662.4 billion from $658.1 billion, according to the report.

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Core retail sales, which exclude spending on cars and vehicle parts, rose 1.1% from February’s level, beating the median estimate of a 1% rebound. Spending at retailers exclusively rose just 0.4%, according to the report.

The data indicates that spending fell for a second straight month as Americans held off historic price growth. In March, inflation reached an even more worrying level, as the Russian invasion pushed up the prices of a whole range of products. The conflict and related sanctions have hammered supply chains for commodities like wheat, fertilizer and nickel, raising new inflation concerns for food producers and manufacturers. Measures targeting Russia’s energy sector also pushed gasoline prices to record highs in mid-March, adding to the pain for Americans at the pumps.

Overall, generalized inflation reached an annual rate of 8.5% last month, according to government data released on Tuesday. The one-month gain of 1.2% was also the largest since 2005, signaling that price growth did anything but slow in March. Rising prices likely played some role in the higher overall retail sales figure, but the gain was mainly fueled by seemingly insatiable demand from Americans.

While monthly spending remains historically high and above the pre-pandemic trend, the back-to-back downturns suggest the overall recovery is shifting into lower gear. Consumer spending accounts for about 70% of economic activity, and the Retail Sales report covers a significant portion of Americans’ shopping activity. March’s gain is the weakest since December’s sales contraction, and a prolonged deceleration in spending growth would remove some of the engine of the US rebound.

Yet a slowdown could also help solve the country’s inflation problem. Prices have climbed at an extraordinary rate for about a year as overwhelming demand plummets into tight supply. A cooling in this demand would likely leave companies better equipped to bolster inventory and help resolve the imbalance.

Spending at gas stations saw the biggest jump, with sales up 8.9% in the month. The sector was probably the hardest hit by the price spike. This followed a 6.7% gain the previous month and was accompanied by an 18.3% rise in gasoline prices through March, according to the consumer price index.

General merchandise stores posted the second highest sales increase of 5.4%, followed by hobby and sporting goods stores with a 3.3% gain.

Spending fell 6.4% at non-store retailers, marking the biggest one-month decline of any category and deepening a decline that began in February. Sales also contracted at car dealerships and auto parts stores, health and personal care stores and department stores, according to the report.

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