Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
Don’t be fooled by that headline, as inflation is still a big problem. Consumer prices rose 5.3% compared to a year ago, which was slightly less than expected, but still a 13-year high. Don’t forget that the Fed’s target inflation rate is 2%, so we are very much in dangerous territory. The only question is whether this is transitory as the Fed believes, or here for the long haul. The biggest price increases over the past year were energy (+25.0%), new vehicles (+7.6%), and food (+3.7%). Here is an interesting article on how inflation is impacting the prices of online goods. As I’ve said before, the Fed is taking a huge gamble that inflation will subside in the coming months. I think they’re wrong, as we have just printed too much money over the past 18 months.
Retail Sales Unexpectedly Rise
Retail sales rose 0.7% last month, much better than the 0.8% decline that economists were looking for. It seemed logical with rising prices and the surge in COVID-19 cases that consumers would reduce spending. So much for that logic!
The surprising increase was fueled by a 5.3% jump in online sales, probably helped by impulse spending. A recent survey found half of the respondents said they are overspending, with 42% admitting that impulse spending and carrying more debt were worsening their financial situation.
If you have this problem (I know I do), here’s an article with tips on avoiding those impulsive buys.