Consumer spending in US beats expectations as inflation surges
Consumer spending in the Unit ed St at es, which account s for more than t wo-t hir ds of it s economic act ivit y, r ose 1.1% last month
US consumer spending increased more than expected in June as Americans paid more for goods and services, with monthly inflation surging by the most since 2005.
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 1.1 per cent last month, the Commerce Department said.
Data for May was revised up to show outlays gaining 0.3 per cent instead of 0.2 per cent as previously reported.
Economists polled by Reuters had forecast consumer spending would accelerate by 0.9 per cent.
The data was included in the advance gross domestic product report for the second quarter, which was published on Thursday. That report showed inflation-adjusted consumer spending increased at its slowest pace in two years amid declines in purchases of goods, particularly food, because of higher prices.
Gross domestic product contracted at a 0.9 per cent annualised rate last quarter ater declining at a 1.6 per cent pace in the first quarter.
Inflation heated up in June. The personal consumptionexpenditures(pce)priceindexjumped1.0 per cent last month. That was the largest increase since September 2005 and followed a 0.6 per cent gain in May. In the 12 months through June, the PCE price index advanced 6.8 per cent, the largest increase since January 1982.
The PCE price index rose 6.3 per cent yearon-year in May.
Excluding the volatile food and energy components, the PCE price index shot up 0.6 per cent ater climbing 0.3 per cent in May. The so-called core PCE price index increased 4.8 per cent on a year-on-year basis in June ater rising 4.7 per cent in May.
The Federal Reserve on Wednesday raised its policy rate by another three-quarters of a percentage point. It has now hiked that rate by 225 basis points since March.
US consumers lowered their views of where inflation is headed in July, a closely watched survey showed on Friday, a downshit in expectations that will be welcome news at the Federal Reserve in its batle with the highest inflation rate in four decades.
Consumersrespondingtothismonth’suniversity of Michigan Consumer Sentiment Index survey indicated they see inflation in the next year easing to a rate of 5.2 per cent from their previous expectation of 5.3 per cent in June. That is the lowest one-year price increase expectation since February. More importantly for the Fed, which is raising interest rates to lower demand and bring down inflation to its targeted level of 2 per cent annually, consumers expect inflation to run at 2.9 per cent over a longer, five-year horizon, down from June’s highest-in-more-than-a-decade final reading of 3.1 per cent.
While that was not quite the degree of relief as indicated in the survey’s preliminary reading for July published two weeks ago of 2.8 per cent, it will be welcomed at the Fed as an indication that expectations for prices spiraling ever higher over the longer term do not appear to be becoming entrenched.
In addition to fighting actual inflation, the Fed is campaigning to manage the psychology around it by signalling its intentions to act forcefully to contain it, which economists believe is a key driver of inflation over the longer term.
Earlier on Friday, the Fed’s benchmark measure of inflation used for its 2 per cent target was reported at 6.8 per cent in June, up from 6.3 per cent in May and the highest in 40 years.
Economists and Fed officials have some hope that inflation readings for the current month will ease from those levels as prices for some key consumer staples - gasoline prices in particular - have dropped notably since hiting record highs in June. Pump prices, which are influential in the University of Michigan surveys as well, have fallen more than 15 per cent since mid-june, according to AAA.
Meanwhile the nasdaq and thes & p 500 indexes rose on Friday and were on track for their biggest monthly gain in nearly 20 months, ater upbeat earnings updates from Apple and Amazon and on hopes of a less aggressive monetary policy.
Mega-cap companies have largely fared beter this reporting season and are predicting less impact from the current economic turmoil, allaying investor fears that a potential recession could dent their earnings power.
By early aternoon, Apple Inc shares gained 2.9 per cent ater the company said parts shortages were easing and that demand for iphones was unceasing despite consumers tightening other spending.
Amazon.com Inc shot up 11.4 per cent ater it forecast a jump in third-quarter revenue from bigger fees from its Prime loyalty subscriptions.
The S&P 500 technology index was up 0.7 per cent and looked set to record a 12 per cent gain for the month, its biggest since April 2020. However, gains on the Dow Jones Industrial Average were capped by Intel Corp, which tumbled 8.9 per cent ater it cut annual sales and profit forecasts and missed second-quarter estimates.