The U.S. retail sales data released earlier this week came in stronger than expected for September, rising by 0.7%, compared to a consensus of 0.3%, with a year-over-year increase of 3.8%. This led several analysts, especially the media, to interpret it as a clear sign of robust consumer spending in the United States. However, in a recent podcast, economist Peter Schiff explained that, in his view, this reasoning is flawed because the retail sales data is not adjusted for inflation.

In fact, everything is more expensive. Everything you buy is much more expensive. So, assuming you're not buying less, and of course, some people are buying less, but if you're buying the same thing, and everything costs a lot more, then, of course, retail sales will go up, Schiff explained.

Indeed, when adjusting the 3.8% year-over-year increase in retail sales for inflation based on the Consumer Price Index (CPI), the growth drops to 0.1%, which means that nearly all of the retail sales increase is attributable to rising prices.

Americans are not happy that their grocery bills have gone up, and they probably aren't eating more or better. In fact, they are likely purchasing lower-quality products. They are simply paying more," stated the economist, once again emphasizing that "the formula intentionally underestimates price inflation."

He warned that the U.S. consumer is "not invulnerable" and is "burdened with debt," arguing that "the only reason they are still afloat is because they have two or three jobs," which he considers a failure of the U.S. economy.

Schiff also raised another concern, which is that consumption is being financed through credit. Revolving credit, primarily credit cards, increased by 13.9% in August. Americans now have a debt of $1.28 trillion in revolving credit.

According to MarketWatch, "Americans appear to rely more on debt to pay for their purchases. They also make greater use of 'buy now, pay later' plans," which are symptoms of financial distress.

"Americans are spending more on housing. They are spending more on energy. They are spending more on food. They are spending more on insurance. They are spending more on healthcare. They have to make these expenditures. They have no choice. And the problem is that when they're done buying everything they need, they have very little left for what they want," explained the economist.

In another statement, this time on Twitter (NYSE:TWTR), Schiff provided another example of real inflation, highlighting that the price of a Netflix subscription (NASDAQ:NFLX) has just been raised from $15.99 to $22.99, up 44% in 3 years, which he considers "much closer to the real inflation rate than the official CPI."

In response to Jerome Powell's speech last night, Schiff also criticized the Fed Chairman for attributing inflation to the COVID-19 pandemic.

"It's not the pandemic that caused inflation but the Fed and the federal government," he wrote, adding that "both worsened the inflation problem during the pandemic by running massive budget deficits and printing large quantities of money" to fund the assistance provided during that period.

According to him, the main mistake is that the Fed does not consider fiscal policy. In another tweet, he stated that "Powell says the Fed doesn't consider fiscal policy when making monetary policy decisions and doesn't change monetary policy based on fiscal policy," which he considers "probably the most reckless admission ever made by a Fed Chairman" and believes it will "define Powell's poor legacy.