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How Much Has Inflation and Free Money Goosed Consumer Spending?

Retail sales came in on the hot side in April. But How much of that is inflation?
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Retail Sales from Commerce Department, chart by Mish 

Retail Sales from Commerce Department, chart by Mish 

Earlier today I noted Retail Sales Easily Beat Expectations, US Treasury Yields Jump in Response

Here's a key point that I mention every month: "Retail sales are adjusted for seasonal variation and holiday and trading-day differences, but not for price changes."

This month the CPI rose by 0.3 percent but sales rose by 0.9%. So even taking inflation into consideration, sales were on the hot side. 

Real Advance Retail Sales 

Retail Sales from Commerce Department, chart by Mish 

Retail Sales from Commerce Department, chart by Mish 

That's the chart that shows the true economic picture. It's "real" (inflation adjusted) sales that will drive GDP estimates. 

Amazing Demand Recovery 

The demand recovery following the 2020 Covid recession is unprecedented.

 Consumer spending is well above the preceding trendline and that is fueling inflation. But what fueled spending?

Retail Sales from Commerce Department, chart by Mish 

Retail Sales from Commerce Department, chart by Mish 

Retail spending did not cool after those rounds of free money in either nominal or real terms. 

The above chart is nominal data, not inflation-adjusted but it explains big piece of inflation. 

Explaining Inflation

  • The three "free money" Covid stimulus jumps in April of 2020, January of 2021 and March of 2021 led to jumps in consumer spending.
  • Eviction moratoriums also padded consumer pockets
  • Huge leaps in the number of SNAP (food stamp participants) freed up money for other goods
  • Supply chain disruptions
  • The war in Ukraine 

CPI

CPI Data Courtesy of BLS

CPI Data Courtesy of BLS

President Biden likes to blame Putin but the story does not wash. Putin invaded Ukraine in February of 2022.

Prices were already soaring. And the Fed ignored inflation every step of the way. It kept QE running all the way to March 2022!

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QE goosed the stock market and that boosted demand for cars and second homes.

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Brain Dead Fed + QE + Unwarranted Stimulus + Supply Chain Disruption = Inflation

But no one could possibly have seen this coming (especially the Fed which kept QE running all the way to its first rate hike). 

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Meanwhile Biden Doing Everything Possible to Drive Up the Price of Oil, Some of It's Illegal

Biden also has big push for unions which will add to inflation, a big push for clean energy which will add to inflation, and of big push for student debt cancellation which would hugely add to inflation.

Powell on De-Globalization

De-Globalization: New Supply Chains Are Inefficient and Will Drive Up Inflation

Finally, please recall my April 4, 2022 post  New Supply Chains Are Inefficient and Will Drive Up Inflation

De-globalization is underway. A key ramification is higher inflation.

Other than all of the above, things are very rosy. 

This post originated at MishTalk.Com.

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