The week ahead for April 18, 2022: Consumers adapt to inflation, vote with their feet
The latest news
Inflation has been the dominant economic story so far in 2022, and that remained the case last week with the news of March’s 8.5 percent year-over-year advance in the Consumer Price Index (CPI). Despite the increase being greater than expected and representing another 40-year high, there are signs that inflation may be nearing its peak. The core CPI (net of food and energy) was up “only” 6.5 percent, nearly level with last month’s 6.4 percent rise and 10-20 basis points below expectations.
Last Thursday’s report on retail sales for March offered evidence that consumers are adjusting their behavior to bear up under inflationary pressure. Overall, nominal sales were up 0.5 percent, roughly in line with expectations, but hardly enough to keep up with price increases. Consumers spent more at the pump, with dollar sales of gasoline up nearly 9 percent. However, prices were up over 18 percent, which means that the volume of gasoline sold actually decreased by over 9 percent.
To accommodate the increased share of wallet spent on fuel for their vehicles, shoppers cut back on e-commerce purchases, which declined by 6.4 percent. Meanwhile, food and beverage sales (at both stores and restaurants) maintained pace with prices, and sales of electronics, recreational equipment, and clothing at brick-and-mortar stores continued a trend of real growth. Consumers are still moving back toward physical retail experiences, though e-commerce will remain a bigger slice of the pie than it was before the pandemic. For more on the outlook for retail this year, see “Retail therapy, anyone?”
Shifting spending patterns are one explanation for the resilience of consumer sentiment. The University of Michigan’s preliminary index for April rose sharply to 65.7, defying projections of a dip below 59.0 that would have marked a new 10-year low. Among the surprises were stable expectations for both short- and long-term inflation. Buoyed by a strong job market, consumers appear confident that they can weather the current storm of rising prices.
Happening this week
TUESDAY, APRIL 19
Measure: Housing Starts, annualized rate for March
Previous: 1.769M
Expectation: 1.73-1.75M
Measure: Building Permits, annualized rate for March
Previous: 1.865M
Expectation: 1.81-1.83M
Monthly housing starts and building permits are expected to remain near recent levels, which, while historically high, have not yet effectively addressed the lack of inventory in the market. As a result, home values and rents have continued to rise quickly.
WEDNESDAY, APRIL 20
Measure: Existing Home Sales, annualized rate for March
Previous: 6.02M
Expectation: 5.8-5.9M
High prices and increasing mortgage rates are expected to further cool sales of existing homes, perhaps to their lowest rate since the initial phase of the pandemic. Limited inventory should continue to bolster prices, however, which have risen continuously every month for the past decade.
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