Retail sales dropped 1.9% in December as higher prices caused consumers to curb spending

A family of shoppers walk out of Walmart with a full shopping cart.

The Commerce Department reported Friday that retail sales fell more than expected in December.

The advance monthly sales report to close out the year showed a decline of 1.9%, much worse than the estimate of a small drop.

Excluding autos, sales fell 2.3%, which was well below expectations for a 0.3% rise.

The November gain was revised down to 2% from the initial increase of 0.3%.

The data shows that the sales numbers are not adjusted for inflation, which means that the strong sales of the previous year are over.

The year-over-year gain in the consumer price index was the highest since June 1982. The wholesale price rose 9.7% in the 12 months ending in December, the biggest rise since data was kept going back to 2010.

Online spending took the biggest hit as a share of overall spending, with nonstore retailers reporting a plunge of 8.7% for the month. Music and book stores saw a decrease in sales.

As consumer activity waned, omicron cases exacted damage across the board.

The decline for the month was 0.8% for restaurants and bars, which had a 41.3% annual gain in 2021. Gas stations had a 41% increase in sales in the year, but saw a 0.7% decrease in December as fuel costs fell. The price of gasoline fell when the price at the sump went up.

There were two categories that saw increases for the month: building materials and gardening centers, which gained 0.9%, and the miscellaneous store retailers, which rose 1.8%.

The Labor Department report Friday showed import prices fell for the first time since August, due in part to a 6.5% fall in the price of oil.

The number gave some hope that the inflation surge could be ending, though most of the move came from falling prices for oil.

Federal Reserve officials in recent days have been stressing the importance of heading off inflation, with multiple policymakers saying they expect to start raising interest rates as soon as March. The central bank leaders and the Biden administration have joined together in blaming the rising prices on factors such as a huge demand for goods and a shortage of services.

The price surge has been the result of unprecedented levels of cash injections to the economy from both fiscal and monetary policy.