Insights 
VT 
US Retail Sales Concerns
CIBC is sceptical about the recent US retail sales report, citing a soft ‘control group’ reading and the possibility of spending being skewed as temporary. They caution that slower population growth later in the year may lead to weaker consumer activity. The consumer landscape appears challenging, with concerns about future conditions for consumers.
The discussion around tariffs reveals that although earlier optimism has stalled, tariffs remain high at around 15%. Many businesses initially managed through inventories and absorbing tariffs, but this phase is ending. Major retailers are beginning to announce price increases for the coming months as they face the impact of tariffs on imports.
Walmart confirmed plans to raise prices in May as tariff-affected goods reach shelves, acknowledging the unprecedented speed and scale of price changes. While there are some future paths for improvement in consumer sentiment, these are limited. Overall, CIBC expects that tariffs combined with low consumer sentiment will result in consumption growth slowing to around 1-1.5% in the latter half of the year. The administration’s trade and finance strategies, despite being more methodical now, could be impacting market sentiments significantly.
This piece essentially highlights that while headline retail sales in the US appear healthier on the surface, the underlying support—specifically the ‘control group’ measure used to assess core consumer spending—was relatively weaker. That subgroup excludes more volatile items like food and gas, which gives a cleaner gauge of consumers’ true purchasing momentum. According to CIBC, that reading tempers confidence in the idea that households are meaningfully ramping up discretionary spending. Moreover, with household formation and overall population growth expected to decelerate into the latter half of the year, demand is unlikely to gather much more strength.
From our perspective, it’s clear that the current metrics paint a picture of a consumer that’s not deteriorating outright, but certainly not powering ahead either. Households have, to a large extent, relied on what remains of pandemic savings and expansionary credit policies. But that buffer is thinning. The soft control group print suggests that spending is being underpinned by specific categories rather than a broad-based recovery.
Adding pressure is the delayed effect of elevated import duties. While initial pricing strategies shielded shoppers—thanks to inventory stockpiles and temporarily reduced margins—those measures now seem largely exhausted. We note that some large retailers have flagged a wave of price rises beginning this quarter. These are not symbolic adjustments. When names like Walmart begin publicly affirming not only the scope but the pace of their price increases as being without precedent, it tells us that input cost pressures are no longer constrained to the supply chain. They’re now feeding directly into headline prices.
Consumer and Retail Market Challenges Ahead
Retailers are entering a phase where the ability to hold prices steady has run its course. With tariffs holding around 15%, and little indication of new trade relief in the near term, corporate margins are being restructured. The public will soon face these changes directly at the checkout. Any hope for offsetting this with stronger real wage growth is thin. With workforces stabilising and forward hiring intentions muted, price inflation looks set to outpace income gains in some segments.
Consumer sentiment, already rattled, may not withstand the dual force of thinner real wages and higher prices without some drag on volumes. Although there’s always room for psychological uplifts—seasonal trends, political manoeuvres or one-off stimulus checks—these would likely prove narrow and short-lived.
CIBC’s forecast of consumption drifting towards the lower bound of 1 to 1.5% growth aligns with our own assessment, especially when overlaying rising financial market uncertainty. What we’re witnessing is a slow squeeze on flexibility, both for households and businesses. The tools that previously allowed firms to cushion shocks—forward-buying inventories, hedging dollar exposure—are now being revised or scaled back entirely. The economy is not contracting, but its rate of adjustment to policy dynamics is moderating.
With this, one must account for how exposed pricing structures are to administrative decisions. The latest direction from the administration is more deliberate, but in being so, it is also slower to stimulate on the demand side. This appears to be weighing on short-dated vol expectations, especially around event risk positioning. One-year skew patterns are showing an increased demand for downside protection as the perception that baseline activity may fall below longer-run trend begins to solidify.
The next few sessions should be used to test the resilience of consumption-linked instruments, particularly in the context of lingering policy inertia. Sentiment may oscillate more heavily around each data print than earlier in the quarter. Traders will need to assign narrower risk bands to their macro views, factoring in not just the tariff passthrough but also the consumer’s diminishing ability to absorb them. We’ve begun to see this presented more clearly in options volumes concentrating on forward IV spikes rather than implied recoveries. The repricing is tactical, not reactionary.
Retail flows, especially those tied to discretionary names, remain fragile. Responses to earnings over the next fortnight may prove instructive on whether margins are now being sacrificed to maintain headline growth—or if, as it appears, that growth is being sacrificed outright to preserve profit thresholds. The latter has stronger implications for near-term range boundaries in consumer-linked derivatives.
