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US retail sales flat in July as gas prices fall – AFR


US retail sales held steady in July as gas prices fell sharply, but new data released on Wednesday showed consumers are still spending, keeping pressure on the Federal Reserve to continue its aggressive rate hikes.

Frugal Americans have been a key driver of the US pandemic recovery, and the Fed is keeping a close eye on economic data as it struggles to quell red-hot inflation without plunging the world’s largest economy into recession.

While the closely watched report’s headline data stagnated at $682.8 billion, rather than rising slightly as economists had expected, sales rose 0.7 percent when gasoline and motor vehicles are excluded from the calculation, the Commerce Department said.

“Despite the soft headlines, the key retail sales figures for July show that consumers are staying strong,” said Oxford Economics’ Kathy Bostjancic.

“The solid report today keeps the Fed in an aggressive tightening mode.”

The central bank has raised the benchmark interest rate four times this year, including two massive three-quarter-point hikes in June and July, after annual US inflation rose to 9.1 percent in June.

– price relief –

Inflation slowed to 8.5 percent in July, but policymakers have made it clear in recent comments that their efforts to cool the economy are not over.

Still, Bostjancic said the Fed could slow the pace of hikes.

“If inflation, commodity prices and inflation expectations ease, the Fed may decide to scale back the rate hike to 50 basis points (basis points),” she said in an analysis.

The Fed’s next monetary policy meeting is in late September.

US gas prices at the pump spiked following Russia’s invasion of Ukraine in late February, but have trended down in recent weeks, falling by more than $1 a gallon after hitting an all-time high of over $5 a gallon in mid-June had achieved squeezing family budgets.

While spending on cars fell 1.7 percent and gas stations fell 1.8 percent, Americans increased spending on furniture, groceries, electronics and online shopping.

Sales of building materials and gardening supplies rose 1.5 percent, but declined in clothing and department stores.

The data is seasonally adjusted but doesn’t account for price changes, so a shopping dollar doesn’t stretch as far as costs rise.

Still, the report shows that the stockpile of savings is helping consumers deal with higher prices and bodes well for economic growth, said Ian Shepherdson of Pantheon Macroeconomics.

“The overall picture here is favourable,” he said. “Anyone looking for a recession will not find it here.”

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