Rising inflation in the US has been in the news for several months. In February 2022, consumer inflation in the US jumped to 7.9%. That’s a 40-year high point, last seen in 1982 (see the figure below).

As retail industry analysts, the key question for us is whether inflation is already driving US retail sales growth — or is retail sales growth still volume-driven? To answer this question, we looked at monthly inflation data from the US Bureau of Labor Statistics (BLS) for the past six years. We also looked at US monthly retail sales data from the US Census Bureau. See our analysis in the charts below.

Inflation In The US Continues To Rise

BLS data shows that inflation in the US reached 7.5% in January 2022, up from 1.4% in January 2021 and well above the US fed target of 2.0% (see the figure below).

Retail Sales Saw Double-Digit Growth During Most Of 2021

If we compare US monthly retail and food services sales’ year-over-year growth with US inflation (aka the consumer price index’s 12-month percentage change), then we observe that:

  • During pre-COVID years (2019 or earlier), US retail sales growth was mostly higher than inflation growth — which implies a growth in retail volumes.
  • During the period of March to May 2020, US retail sales growth was much lower than inflation growth — which implies a decrease in retail volumes during that time.
  • Since March 2021, US retail sales have been growing in the double digits. This growth is much higher than inflation growth. It implies an increase in retail volumes due to US consumers’ accumulated savings during the pandemic as well as stimulus checks that US consumers received from the government.

The Gap Between Retail Industry Sales Growth And Inflation Is Shrinking

We believe that the difference between retail sales growth and inflation can serve as a good proxy for determining retail volume growth. If we compute the difference between retail sales growth and inflation, we find that the maximum difference was in April 2021. That difference has shrunk since then, however, as inflation is increasing and retail sales growth is decreasing (see the figure below).

US Retail Sales Are Volume-Driven, Until Now — We’ll Keep An Eye On How They Develop Going Forward

As of January 2022, the difference between retail sales growth and inflation is still big enough to indicate that, until now, retail sales growth is volume-driven and not inflation-driven. If the difference decreases further or goes into negative territory, however, then it will imply decreasing retail volumes and an inflation-driven retail sales growth.

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