Retail sales December 2021:

A family of shoppers exit Walmart with a full shopping cart on November 26, 2021 in Westminster, Colorado.

Michael Siaglo | Getty Images

The Commerce Department reported on Friday that retail sales fell much more than expected in December as higher prices led to a significant increase in spending.

The advance monthly sales report to close the year showed a decline of 1.9%, much worse than Dow Jones’ estimate of a decline of just 0.1%.

Excluding cars, sales fell by 2.3%, a number that was well below expectations for a rise of 0.3%.

In addition to the weak December numbers, November’s gain was revised to 0.2% from the initially announced 0.3% increase.

Given that sales numbers are not adjusted for inflation, the data points to a slow end to what was considered a strong 2021 as sales are up 16.9% from a 2020 that has been marred by the pandemic.

The CPI rose 0.5% for the month, bringing the annual gain to 7%, the highest level since June 1982. Wholesale prices are up, too, jumping 9.7% in the 12-month period for the largest increase in a calendar year. Because the data still goes back to 2010.

Online spending took the biggest hit as a share of total spending, with out-of-store retailers reporting an 8.7% drop in the month. Furniture and home furnishings sales fell 5.5% and sporting goods, music and bookstores saw a 4.3% drop.

The rise in omicron cases is causing damage across the board as consumer activity has waned.

Restaurants and bars, which posted a 41.3% annual increase in 2021 to lead all categories, saw a 0.8% drop during the month. Gas stations ranked second for the year, with sales up 41%, but saw a 0.7% drop in December as fuel costs fell. Gasoline prices fell 0.5% towards the end of a year when prices in the basin rose 49.6%.

Only two categories saw increases during the month: miscellaneous retail stores, which were up 1.8%, and building materials and gardening centers, which were up 0.9%.

A separate Labor Department report on Friday showed import prices fell 0.2% for the month, versus expectations for a 0.2% increase, the first negative number since August due in large part to a 6.5% drop in fuel prices.

This number offered some hope that the rise in inflation might subside, although much of the move came from lower oil prices..

Federal Reserve officials have stressed in recent days the importance of avoiding inflation, with many policymakers saying they expect to start raising interest rates as soon as March. The Biden administration has joined central bank leaders in blaming much of the price hike on pandemic factors such as massive demand for goods over services and supply chain issues.

However, the price hike came after unprecedented levels of liquidity injection to the economy from fiscal and monetary policy.

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