Strong growth in US consumer spending in June; rising inflation Reuters

Washington (Reuters)-Consumer spending in the US rose more than expected in June as vaccination against COVID-19 boosted demand for travel-related services and entertainment, but part of the increase reflected price increases and annual inflation rates were further higher The Fed’s 2% target.

The US Department of Commerce said on Friday that consumer spending, which accounts for more than two-thirds of US economic activity, rebounded 1.0% last month after falling 0.1% in May.

Nearly half of the population is vaccinated against COVID-19, which allows Americans to travel, visit restaurants, visit casinos, and participate in sports events. These service-related activities were curbed in the early stages of the pandemic.

Although commodity spending remains strong, due to the shortage of automobiles and some household appliances, its production is hindered by the tight global semiconductor supply, so the pace has slowed down.

The data is included in the second quarter gross domestic product report released on Thursday. Consumer spending grew at a strong annual rate of 11.8% last quarter, accounting for the majority of economic growth at 6.5%, which brought GDP levels above the peak in the fourth quarter of 2019.

As demand exceeds supply, inflation is heating up.

The Personal Consumption Expenditure (PCE) price index, excluding the volatile food and energy components, rose 0.4% in June after rising 0.5% in May. In the 12 months to June, the so-called core PCE price index soared by 3.5%. The core PCE price index rose 3.4% year-on-year in May.

Economists surveyed by Reuters had expected consumer spending to increase by 0.7%, and the core PCE price index soared by 3.7% year-on-year. The core PCE price index is the Fed’s preferred inflation indicator for its 2% flexible target.

The U.S. central bank maintained its overnight benchmark interest rate at a level close to zero on Wednesday and maintained its bond purchase plan.

Federal Reserve Chairman Jerome Powell attributed high inflation to supply constraints when the economy reopened. He told reporters, “These bottlenecks are larger than expected, but as these short-term supply effects weaken, inflation is expected to fall back to us. Longer time-run the goal.”

Although fiscal stimulus is fading and COVID-19 cases are increasing in states with lower vaccination rates, driven by the delta variant of the coronavirus, consumer spending may continue to grow.

During the pandemic, households accumulated at least US$2 trillion in excess savings. Record-breaking stock market prices and rising house prices are increasing household wealth. As companies compete for scarce workers, wages are rising.