United States: Price Growth Remains Strong, but Retail Sales Growth Has Softened

Monthly price increases were in line with the consensus forecast—even if they were still high from a historical perspective. The month-over-month change to total CPI was even a bit lower than expected, thanks to stalling food prices and slightly weaker growth by energy prices, as the rise in gasoline and fuel oil prices was partially offset by the drop in natural gas and electricity prices. The 0.3% gain by core CPI comes on the heels of three consecutive increases of 0.4%, so there's been some progress on that front as well.

Once again, there was a sharp divergence between prices for goods (excluding food and energy), which dipped 0.1% in April, and for services (excluding energy), which rose 0.4%. This was the smallest monthly gain since December. Goods prices were helped by lower prices for new and used vehicles, and services felt a little less pressure from medical care and transportation services than in March. In terms of shelter, monthly growth has remained the same at 0.4% since February, despite falling prices for lodging away from home.

For total retail sales, the lack of growth is rather disappointing. The value of sales by motor vehicle and parts dealers pulled back 0.8%, even though the number of new vehicles sold went up in April, according to the numbers released earlier this month. Some of the contraction may be due to lower prices, but buyers also probably purchased fewer high-end vehicles, bringing down the total. The other retail sales categories posted equally lacklustre results, coming in lower than expected given preliminary card transaction data. The 1.2% drop in online sales is the worst since November 2022. That being said, a slowdown in consumer spending is not so surprising: interest rates are still high and consumer confidence indexes have been waning for several months. Households also seem to have spent the excess savings External link. they built up during the pandemic.

Inflation remains high in the United States. There's some progress on the CPI results for April, but not enough to bring the Fed to cut its key interest rates any time soon. It's comforting to see that retail sales rose at a slower pace, but we'll need to see the trend continue for several months before we're convinced that consumption is really calming down—especially since spending on services has been ramping up over the last few quarters.