The robust pace of U.S. consumer spending looks at first glance like evidence that inflation isn’t hurting a resilient U.S. economy. And that’s how Tuesday’s government report on strong October retail sales growth has widely been interpreted.

Look harder, though, and a more ominous omen appears: one of inflationary psychology becoming entrenched and the risk of an inflationary spiral so intense it would require a damaging recession to correct.

Data from the Commerce Department show that retail sales increased by 1.7 percent in October, beating forecasts. The gains topped those in September and August, even as consumer prices rose the fastest in 31 years. October’s spending gains were the largest since March.

So far, so good. Consumers have money and they’re spending it. That looks like prosperity, not a portent of doom. Quarterly reports from Walmart Inc. and Home Depot Inc. show earnings beating Wall Street’s expectations. Walmart is even planning for inflation’s retreat.

Not so fast. Part of the reason sales boomed appears to be that households did more Christmas shopping than usual in October.

More on that in a moment. First, look under the hood of the Commerce Department’s spending report. Not everything went up. Outlays at health and personal-care stores actually dropped, by 0.6 percent. Consumers spent 0.7 percent less on clothing and accessories in October than in September. Restaurant spending was flat over the month.

That’s the kind of behavior that inflation can usually be expected to generate. If restaurant meals and clothing cost more, people are likely to buy less of them, and in October, that’s what happened.

And that in turn is consistent with data released last week showing that consumers are gloomy. According to the University of Michigan’s Consumer Sentiment index, fear of inflation is growing. Consumers expect prices to rise by nearly 5 percent over the next year. According to the survey, one in four consumers said their living standards were reduced in November due to inflation.

But rising prices and souring sentiment did not dampen all the components of consumer spending last month. Spending at department stores was up 2.2 percent relative to the prior month. Sales at online and mail-order retailers grew by 4 percent, and at other retailers by 2.8 percent. Electronics and appliance stores saw sales surge by 3.8 percent in October after falling for the prior three months.

What do department stores, online retailers and electronic stores have in common? They are typical venues for Christmas shopping. But Christmas shopping in October is unusually early.

It may be that consumers are less worried about price increases than supply chain disruptions that could make it difficult for them to purchase holiday gifts. Maybe restaurants just can’t boom as long as the pandemic makes people fearful of indoor crowds.

But inflation is surely a concern. As long as consumers worry that gifts will become more expensive as December approaches, the tentacles of inflation are stretching into the consumer psyche.

Inflation isn’t necessarily a menace. Rising prices provide grease for the economy as long as they grow slowly enough so that consumers and businesses don’t have to pay much attention. But if the anticipated difference between October’s prices and December’s prices is enough to motivate people to head to the department store for Christmas gifts, then inflation is troublingly conspicuous.

The more entrenched concerns about inflation become, the more dangerous they are to the economy. Anticipating higher prices, workers might demand higher wages. The rising cost of materials and equipment leads firms to raise their prices. Because firms buy from each other, higher prices charged by some firms mean even higher prices for others. This leads to higher consumer prices, and greater demand from workers for even higher wages.

An inflationary spiral would have taken hold in which businesses increase the prices they charge because they expect that the prices they face will continue to go up. A self-fulfilling cycle is created that would probably require a recession to correct and reset, throwing millions out of work, reducing incomes and harming typical workers and households in myriad ways.

Of course, October’s spending data don’t prove that inflation is spiraling out of control. But they are one more reason to be concerned.

Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and Arthur F. Burns Scholar in Political Economy at the American Enterprise Institute. He is the author of “The American Dream Is Not Dead: (But Populism Could Kill It).”

(15) comments


I ran across an interesting phrase called 'shrinkflation' or spelled something close to that. Think about a one pound package of coffee being $7 and now that package is still $7, but only 12 ounces. Sneaky way to make some extra bucks.

In the meantime, the sofa we ordered in May might be here by Christmas. The car I bought at the same time (after a long search for it) was bought at full MSRP and would have been a few thousand more in this area. I would have to pay MSRP plus $1000 or more now to get it.


That happened with candy a long time ago. once upon a time you got large candy bars when "trick or treating." Now children get "fun" size. It's not necessarily bad that candy is smaller but it was done to keep prices lower than they would be.


Yes, what used to be a half-gallon of ice cream is now three pints. From 64oz to 54oz to 48oz over the past 30 years. Shrinkflation sounds good to me.


Sorry, I missed the author's point that fear of inflation might be driving the purchasing boom. That sounds whacky to me. Has anyone reading this based their purchases on a fear of future inflation?


three, It's actually a thing. If you think that prices will be higher when you want to make a future purchase, it is rational to purchase it now before the price goes up. When enough people think that way, they can fuel inflation.


True, but I don't think that has been a major cause of our current inflation.


Ah, I misunderstood your question. I agree: not a major factor.


...or the current purchasing boom.


three, Whilst I take no credit for “anecdata”, I may have possibly coined a new word in response to one of your comments. See here:


To argue that consumers are not purchasing at record levels is ridiculous. The booming economy is why our ports are being overwhelmed - which is one reason we needed the infrastructure bill to pass.


When all these shipping containers are delivered and opened, we might have a surplus of stuff and that may lead to lower prices - deflation. I will not bet on it, but stranger things have happened.


Infrastructure will do nothing anytime soon, if at all, for the ports. Congress should get rid of the Jones Act and allow for smaller ships, US or otherwise, to move goods from one US port to another.

Greg F

I think there are a lot of unscrupulous businesses cashing in on the idea that we will take inflation sitting silent. Steak at Costco is up 60%. That carries over to a lot of other goods the "experts" say are 3% or which I say BS when a $3 loaf of bread is now $4, along with a host of other things. The cattle folks aren't getting that cut of the increase, it's being added along the way after the sale of the animal...profiteering....greed. It's also a lot of businesses playing off the shortage of things caused by chips to delayed shipments with scads of boats off shore. Ammo has more than doubled on some, and other isn't even available at any cost. Once the flow starts, hopefully things will go backward a bit, but by then we will be used to it, unfortunately. Oh...and don't forget the greedy oil industry who is cashing in big time and intentionally shorting production and at the same time doing everything they can to stop alternative fuels.


"Supply and demand" is still a factor.

Greg F

With oil, the supply is being artificially cut, and alternatives are being mitigated by unscrupulous practices an politicians.

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