Retail gross sales up 3% in January, beating expectations regardless of rising inflation

Retail sales rose far more than expected in January as consumers held out despite mounting inflationary pressures.

Forward retail sales for the month rose 3% compared with an expected 1.9% increase, the Commerce Department reported on Wednesday. Excluding autos, sales rose 2.3%, according to the non-inflation-adjusted report. The ex-autos estimate was for a 0.9% gain.

Gastronomy and pubs were up 7.2%, topping all major categories. Car and parts dealers gained 5.9%, while furniture and interiors stores were up 4.4%.

Even with a 2.4% increase in petrol prices, receipts at petrol stations remained unchanged. Online retailers were up 1.3%, while electronics and home appliance stores were up 3.5%.

No category fell after sales fell 1.1% in December.

Year-on-year, retail sales rose 6.4%, in line with CPI movement reported on Tuesday.

Markets moved lower after the news, with major indices slipping slightly in morning trade.

Other economic news on Wednesday showed that industrial production was flat in January, according to Fed data, compared to an estimate for a 0.4% increase.

While production input rose 1% and mining production rose 2%, utilities fell 9.9%, likely reflecting an unusually warm start to the year. Capacity utilization also fell 0.1 percentage point to 78.3%, below the estimate of 79%.

“Monthly reports on industrial production, retail sales and jobs were generally better than expected, pointing to a rebound in economic activity in early 2023 after a period of weakness in late 2022. The Fed will read recent activity reports as support for plans for additional interest rate hikes in the first half of this year,” said Bill Adams, Comerica Bank’s chief economist.

Inflation, as measured by the CPI, accelerated by 0.5% in the first month of the year, the Labor Department said on Tuesday. The sales report shows that even amid heightened inflationary pressures, consumers continued to spend.

The data comes as the Federal Reserve grapples with rising prices that appear to be slowing but are still well above the central bank’s 2% target for the year.

Several Fed officials spoke on Tuesday, each noting that while there has been some progress, there is still work to be done.

“I am confident that monetary policy will continue to move in a way that brings inflation down to 2%. We will stay the course until our job is done,” said New York Fed President John Williams.

Markets currently expect the Fed to approve a quarter-point rate hike at each of its next two meetings, then pause to assess the impact of monetary policy moves on inflation, jobs and broader economic growth.

Consumer spending accounts for about two-thirds of all Federal Reserve economic activity.

There is evidence that the increases are having an impact, although inflation remains stubborn and could be exacerbated by economic reopening in China and rebounding growth across Europe.

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