US retail sales soared 1 percent in June amid continued price increases, according to new data on Friday that spelled more bad news for the Federal Reserve as it struggles to contain rampant inflation.
Data showed that after a lull in May, American consumers were still eating out and buying furniture and cars last month, even amid the fastest inflation in more than four decades.
That poses a challenge for the US Federal Reserve, which has been hoping for clearer signs that its aggressive rate hikes are starting to crank the economy and dampen high prices.
After total sales fell 0.1 percent in May, they rebounded with a vengeance last month, rising to $680.6 billion, the Commerce Department said.
Record gas prices at the pump in June were a key factor, boosting sales at service stations by 3.6 percent for the month and posting a stunning 49.1 percent increase over the past year, the report said.
But the data showed the increases were widespread, and sales were still up 0.7 percent even after removing gasoline from the calculation.
The Fed began raising interest rates in March, raising interest rates by 0.75 percentage points last month, the largest hike in almost 30 years. But the conversation has now shifted to the possibility of a massive full point hike later this month.
Fed Governor Christopher Waller said Thursday he could endorse the mega-move — which would be the biggest move of its kind in four decades — if there were no signs of a slowdown in retail sales data and the new home sales report due in two weeks.
– Mega rate hike in game –
The Fed’s FOMC, which sets policy, will meet on July 26-27 to discuss the next step in its fight against inflation.
Oxford Economics’ Kathy Bostjancic said: “Today’s strong report keeps the Fed in aggressive monetary tightening mode – the debate at the July FOMC meeting will be between a 75bp or 100bp rate hike.”
However, she noted that on an inflation-adjusted basis — the report doesn’t account for rising prices — goods spending appeared to be slowing, “but not contracting,” in the second quarter.
“Although consumer sentiment is very pessimistic, that doesn’t mean they will stop spending,” she said, although they will shift spending more to essentials.
The report showed that auto sales rose 0.9 percent in June after a 3.4 percent drop in May, while sales in furniture stores and restaurants rose 1 percent or more and online sales rose 2 percent. 2 percent increased.
Grocery stores saw a 0.6 percent increase, slower than the previous month.
Clothing and DIY & garden stores were among the few categories to post declines, the data showed.
Neil Saunders, Managing Director of GlobalData, called it “remarkable that the consumer has not taken back more in the face of rising prices”.
But he noted that “consumers didn’t buy more in June – they bought fewer products but paid more for them. It’s not a comfortable position.”
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