WASHINGTON (AP) — U.S. consumers bounced back from a weak holiday shopping season last month, increasing their spending at stores and restaurants at the fastest pace in almost two years, underlining the resilience of the economy in the face of higher prices and multiple interest rate hikes from the Federal Reserve. .

The government said on Wednesday that retail sales jumped 3% in January after falling in the previous two months. It was the biggest monthly increase since March 2021, when a series of stimulus checks boosted spending significantly. With the exception of the pandemic era, January growth was the largest in more than two decades.

The reason for the increase was a jump in car sales, as well as healthy spending in restaurants, electronics stores and furniture stores. The lack of supply that slowed down car production has eased, and more cars are being phased out to dealers. Increased inventories have allowed dealers to meet much of the pent-up demand for cars in the country.

Wednesday’s solid retail sales data, along with a strong January jobs report, suggest the economy remains resilient, perhaps even strengthening, and has little risk of succumbing to a recession any time soon. Earlier this week, economists at Goldman Sachs lowered the chance of a recession this year from 35% to 25%.

However, high consumer spending could also increase upward pressure on inflation. The latest measure of consumer inflation showed that it slowed slightly year-on-year in January, but rose sharply from December to January.

The combination of solid spending and hiring is also likely to increase pressure on the Federal Reserve to raise the benchmark interest rate even further. The Fed has already signaled that it is going to make two more quarter-point increases ranging from 5% to 5.25%, which would be the highest level in 15 years. On Tuesday, Deutsche Bank said it expects the Fed to add two additional hikes to this one this year, ranging from 5.5% to 5.75%.

Some of the increase in retail sales last month likely reflected unusually warm weather, which may have encouraged more people to buy cars, shop and eat out. The government’s seasonal adjustment process also likely helped boost the January figure. Its seasonal adjustments aim to change sales data for typical calendar patterns. An example would be spending spikes during the holiday shopping season and then falling in January.

“While the report says consumers have regained their mojo, the noise of seasonal adjustment and milder winter weather in January explains some of the strength,” said Gregory Dako, chief economist at EY Parthenon. “A stronger-than-expected report puts consumption in a better position in early 2023 and points to positive, albeit sluggish, growth in consumer spending” in the current quarter from January to March.

Retail sales data showed restaurant spending rose 7.2% in January and more than 25% year-over-year. The retail sales report is not adjusted for inflation, so part of this increase reflects higher prices. Restaurant prices have risen 8% over the past year, according to the government’s inflation report.

Whether US buyers can continue to spend quickly will depend on how the economy fares. The Fed’s eight rate hikes last year pushed up the cost of mortgages, car loans, and credit card rates. Inflation has also eroded workers’ wages, thereby limiting their ability to spend freely.

Some signs indicate that businesses are expecting a more cautious consumer. Coca-Cola, for example, said on Tuesday that price hikes last year did not dampen demand for its drinks in October-December. But the company added that it expects slower sales growth this year and expects prices to rise at a much slower pace.

And PepsiCo said it has no plans to raise prices further, according to a Reuters report, because it is not sure consumers will be able to afford it this year.

Despite all the challenges consumers face, they continue to show resilience. Several factors likely contributed to the rise in spending last month. Some 70 million recipients of Social Security and other government pension programs received an 8.7 percent increase in their benefits last month, an annual cost-of-living adjustment to offset inflation. It was the largest such increase in 40 years.

The labor market also rose in January, with almost half a million new jobs created. The unemployment rate reached 3.4%, the lowest level since 1969. As many businesses continue to strive to hire and retain workers, average wages have risen by about 5% year-over-year, one of the fastest growth rates in decades.

These increases, as a rule, were eaten away by inflation. However, consumer price growth slowed down. And for many households, the sharp drop in gas prices since the summer has freed up more money to spend.

On Tuesday, the government said inflation fell again in January from a year earlier, marking the seventh consecutive such decline, to 6.4% from 6.5% in December. But on a monthly basis, price growth in January accelerated compared to November and December, which indicates that it will not be possible to quickly and smoothly beat high inflation.

Lori Logan, president of the Federal Reserve Bank of Dallas and member of the 19-member Fed committee that sets interest rates, warned on Tuesday that the central bank may have to make more rate hikes than it has so far signaled.

“We must remain prepared to continue raising rates for a longer period than previously envisaged if such a path is necessary to respond to changes in the economic outlook,” she said in prepared comments.

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