U.S. retail sales rose sharply in January, the latest in a series of hotter-than-expected economic data that could force the Federal Reserve to keep tightening monetary policy longer to slow the U.S. economy.
Retail sales, which include spending on food and fuel, rose 3 percent last month from December levels, the Census Bureau said Wednesday. Economists expect a 1.8 percent increase.
The data, which included signs that American consumers are not pulling back on spending on discretionary items despite high inflation, came a day after the US labor department released inflation figures that showed price pressures eased as late as last year.
It also follows the labor department’s report on nonfarm payrolls, which showed that hiring nearly doubled in January, with the U.S. economy adding more than half a million jobs in the month — up from 223,00 in December.
Fed Chairman Jay Powell has repeatedly warned that the central bank must maintain high rates to fight inflation: the consumer price index rose at a rate of 6.4 percent in January compared to a year ago.
But in recent months, financial markets have signaled that investors believe the Fed will be able to lift the brakes by the end of 2023 as price data moderates quickly.
However, a spate of strong data in February has led to a reversal in market sentiment. On Wednesday morning, the rate-sensitive two-year Treasury yield rose to its highest level since early November, although it later reversed some of those moves.
The US dollar index, which measures the greenback against a basket of six currencies, rose to its highest level since early January. US stocks fell slightly, with the blue chip S&P 500 down 0.5 percent and the tech-heavy Nasdaq down 0.4 percent.
Wednesday’s retail sales report showed that higher borrowing costs, fueled by the Fed’s aggressive year-long campaign to raise interest rates, and persistent inflation have not left Americans alone.
The January reading showed a strong recovery from the holiday month, which reported the biggest monthly retail sales decline since December 2021. The figure is not adjusted for inflation.
Spending at gas stations has remained flat since December but is still up 5.7 percent from a year ago even as prices at the pump have moderated.
The so-called retail control group, which excludes building materials, motor vehicle parts and gas station sales, rose 1.7 percent, beating economists’ expectations for a 0.8 percent increase.
Additional reporting by Kate Duguid in New York