Optical Illusion

Inflation cost the retail consumer almost $700,000,000 in January, is probably costing even more now. Inflation is not something that may hit the U.S. some time. Inflation is well started here & now.

For 38 consecutive months Department of Commerce figures for retail sales have topped the year before, but the chart at right shows the worm in this shiny apple: January was the fourth consecutive month when the only reason dollar volume was up was that the public was paying more money to get less goods. Ever since last October the physical volume sold has been lower than it was a year before, and the seeming increase in sales has been an optical illusion caused entirely by rising prices. Retail prices are now rising 2% a month. If that trend continues, year's end will see prices up 45% over pre-war levels, and almost a third of every dollar spent will go to pay for inflation.

The physical volume of sales is here estimated by applying Fairchild's index of retail prices (converted to a January 1940 base) to the Department of Commerce's monthly estimate of total retail sales. Dollar volume for January, announced last week, was $4,212,000,000, up 16% above January 1941, but physical volume was down 1%. The top of the red area on the graph traces dollar volume of retail sales since Jan. 1, 1941; the bottom shows physical volume; the widening band of red records the progress of inflation as the two lines spread. The much narrower black band below traces the same curves a year before, to show how physical volume dropped below 1940, beginning in October.

One reason for declining sales is that by January enforced curtailment was cutting into durable consumers' goods (autos, etc.). But the last few months have also included enormous hoarding in nondurable goods. Practically all "increase" in retail sales volume has come from price inflation in nondurable goods.

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