U.S. retail sales declined in May as surges in energy and food prices forced consumers to reduce their spending on vehicles and other discretionary items. With inflation running hot, sales plunged on an inflation-adjusted basis, paring most of April’s gains.

That implies more headwinds to consumer spending in the second quarter. But it won’t be the Federal Reserve’s top concern as it focuses on reducing inflation, starting with a possible 75 basis-point rate hike in its meeting later today.

Retail sales dropped by 0.3% in May, a decline from a downwardly revised 0.7% increase in April, the U.S. Census Bureau reported on Wednesday. Our estimate pointed to a decline of 1.0% in sales after adjusting for inflation.

Note that data on retail sales mostly represents spending on goods, which has been declining on an inflation-adjusted basis since April of last year.

In fact, slowing goods spending or even outright declines could be welcome for the Fed as goods inflation has contributed about 20% to the headline year-over-year inflation figure.

We expect sales to drop further in June as gasoline prices continue to rise and consumer sentiment drops to a record low.

The data

Spending on vehicles led the decline, down by a sharp 3.5% on the month as prices increased by 1.4%, according to consumer price index data last week. That suggests an even sharper drop in sales volume for vehicles in May. Vehicle sales account for a third of total retail sales—the largest component.

Gasoline prices reached a new high in May, rising by 4.0% on the month. Spending at grocery stores rose by 1.2% from a month earlier, mostly because of higher food prices.

As a result, the share of sales at gas stations and food stores rose for the third time in four months, to 21.5%, after a brief decline in April. That means less spending on discretionary items because of persistent inflation.

The control group—which excludes vehicles, food stores, gasoline and building materials—was flat on the month, not enough to offset the monthly price gains. Last month’s data was revised downwardly to an increase of only 0.5%. The control group feeds into the quarterly calculation of gross domestic product. The drop wiped away gains in April, implying declines in the goods-spending component of GDP in the second quarter.

Sales from online retail stores dropped by 1.0% in May while electronics and furniture sales also dropped by 1.3% and 0.9%, respectively.