Inflation Still the 'Wild Card' for 2022, Says NRF Chief Economist

Consumers are shopping fewer times than they did pre-COVID-19, said National Retail Federation Chief Economist Jack Kleinhenz on a Friday webcast, recapping the $886.7 billion 2021 holiday sales season and previewing 2022 retail. During the pandemic, consumers shopped less often to avoid contact with others and stay healthy, but buying more and stockpiling “more than they needed,” Kleinhenz said. That behavior may change a bit, but “people get accustomed to doing certain things,” he said.

Kleinhenz expects more spending on services, travel and entertainment in 2022, which suffered early on in the pandemic during lockdowns, rebounded slightly, and then fell off again in second-half 2021 with the spread of the delta and omicron variants. “I think we’ll see more people going out to eat” but not at levels before COVID-19, he said. The number of workers returning to the office will remain subdued, which will affect store traffic, he said.

On inflation trends in 2022, Kleinhenz doesn’t believe 7%-8.5% price increases from 2021 will repeat. He expects “moderation in inflation,” as new car production gets back on track, taking pricing pressure off used cars. Vehicles and auto parts are about 19% of the personal consumption expenditure inflation index, he said. “You don’t have a repeat on certain products, which is causing the pressure on prices,” he said: “You don’t buy a house every month, either.” He expects gas prices to ease somewhat, too. Kleinhenz expects a 3%-3.5% increase for personal consumption expenditures.

Supply chain issues will continue to drive inflation this year, Kleinhenz said. “It’s going to take a while; it may actually get a little worse,” he said: “We could even see in February that prices have still become higher than they were in January” due to impacts from omicron and product shortages.

The economy is "not going to be growing like last year,” said Kleinhenz, citing three rounds of government stimulus payments. But job growth is creating wages, and consumers largely have a “stockpile of savings.” Consumer sentiment remains low, but it has been inverted with spending over the past six months as shoppers have continued to buy, Kleinhenz said. “The big concern here is inflation, and that’s the wild card.” He also cited geopolitical issues and the possibility of additional COVID-19 variants that could alter the economic outlook.

Over the holiday season, electronics and appliance sales grew 13.8% to $20.2 billion, or 2.3% of total store sales over the November-December span, said the economist. Nonstore retailers rang up $218.9 billion, 24.7% of the overall retail mix vs. 25.3% a year ago, Kleinhenz said.

Kleinhenz noted that before the pandemic, retailers were shifting toward experiential activities in stores. A store might offer cocktails late afternoon, he said, where “you could do a little shopping, do a little relaxing at the same time.” Physical stores are still important, he said, using Amazon’s opening of physical stores as validation of stores’ endurance.