Oil Price Shock Fuels US Consumer Spending Slowdown, Inflation Risks Rise

TD Securities says an oil price shock is driving an alarming slowdown in US consumer spending as global crude markets stay volatile. Benchmark oil prices are up about 40% year-on-year, and the pain is showing at the pump and in logistics costs. Key data cited by TD Securities include gasoline averaging +$1.25 per gallon nationwide since January and rising diesel costs. Retail sales fell 2.3% month-on-month in February 2025, the steepest drop in 18 months. Discretionary categories were hit hardest, with entertainment down 4.1% and dining down 3.7%. Transportation-linked demand also weakened: automobile sales dropped 8.2% month-on-month in February, while public transportation usage rose 12%. TD Securities adds that delivery and shipping-fee sensitivity is increasing, suggesting consumers are reallocating budgets toward higher energy expenses. Inflation transmission is a central concern. The firm notes core inflation momentum is upward, and Producer Price Index intermediate-goods costs rose 0.8% month-on-month in February—signals that higher prices may spread further. Sector and regional impacts vary, with transportation-dependent areas hit more strongly (rural declines larger than urban). Stocks in energy-sensitive sectors have underperformed by roughly 15% year-to-date, while renewables/efficiency investment interest has increased. Overall, TD Securities’ evidence-based assessment (point-of-sale data from 50,000+ retail locations plus surveys and card data) frames this oil price shock as a near-term hit to consumption and a potential contributor to broader inflation expectations—factors that can tighten financial conditions and raise risk-off behavior.