Retail Report: Expert Explains How People Are Still Spending Despite Inflation

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The U.S. Census Bureau released its most recent retail report on Dec. 15, following an advance estimate of U.S. retail and food services sales for the month of November. The report comes amid palpable public concern pertaining to economic recovery and rising inflation.

Retail and food services sales increased slightly in November, with advance estimates showing an increase of .3% from the previous month and 18.2% above November 2020 levels. 

Total sales for September 2021 through November 2021 increased 16.2% from the same period a year ago, the Census Bureau reported. 

Retail and food service sales combined are commonly referred to as consumer spending. Consumer spending has had quite the year, showing resilience despite pandemic pressures and runaway inflation. 

Two of the hardest-hit sectors concerning increased inflation, energy and retail, are also two sectors in which consumers did not elect to decrease spending. In fact, gasoline station spending increased 52.3% from November 2020, while retail trade sales increased 16.1%.

Spending Staying Strong Despite Inflationary Pressure

Jonathan Silver, founder and CEO of data firm Affinity Solutions — which tracks consumer purchasing habits based on 90+ million monthly cardholder transactions and 3,000+ financial institutions — told GOBankingRates that “our data shows spending up 17% annually, compared to 10 to 15% annual growth in October, with yearly increases in top retail sectors like gas stations (68%), bars and restaurants (46%), general merchandise stores (35%) and clothing (33%). Of course, some of that growth is elevated activity compared to last year, which was more subdued.”

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With inflation nearing 7% and consumer spending on the rise as well, this year’s holiday season could be one of the most expensive yet. Silver predicts that the 2021 holiday season could be “perhaps 30% more [expensive] as some predict, but despite that, people are still shopping and spending.”

This conundrum is the riddle that has plagued investors and stock market analysts since COVID began to take its toll. An unrelenting bull market dishing double-digit returns in the face of the most economically devastating pandemic in modern history pairs well with consumer spending figures increasing despite tight labor markets.

High-Income Spenders Driving Retail Sales

People flush with cash are willing to spend it, the data suggests.

“It’s not surprising that our data shows yearly growth in retail spending was driven mostly by higher income groups (>$200K) with 17% increase in spend versus just 9% for those with income between $31K to $60K,” Silver offers.

He adds that inflation is having less of an impact on general holiday shopping items and more of an impact on gas, shelter, food and both new and used car sales. Amazon, he points out, has reported a surge in gifts — such as toys, electronics, gaming equipment, cameras, pet supplies and books — despite inflation fears.

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“Inflation is likely to continue in the year ahead, but is unlikely to reach double-digit levels. We’ll likely see a decrease in inflation as the economy continues to recover, and supply chain issues are corrected.  We may also get some relief from the Fed with increased interest rates, which will create more equilibrium in the economy.”

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