FILE PHOTO: People wearing protective masks shop at Macy’s Herald Square following the outbreak of the coronavirus disease (COVID-19) in the Manhattan borough of New York City, New York, U.S., December 26, 2020. REUTERS/Jeenah Moon
February 25, 2022
WASHINGTON (Reuters) – U.S. consumer spending increased more than expected in January, but price pressures continued to mount, with annual inflation surging at rates experienced four decades ago.
The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged 2.1% last month after falling 0.8% in December.
Economists polled by Reuters had forecast consumer spending rebounding 1.5%.
Consumer spending is being supported by massive savings and strong wage growth amid a tightening labor market. That is offsetting a reduction in government money to households.
The rebound in spending could further temper expectations for a sharp slowdown in economic growth in the first quarter.
Many economists raised their gross domestic product growth estimates for this quarter after January’s robust retail sales. Growth estimates for the quarter are around a 2% annualized rate. The economy grew at a 7.0% pace in the fourth quarter.
Retail sales mostly cover the goods portion of consumer spending. The economy exited the fourth quarter with less momentum amid a resurgence in COVID-19 infections, driven by the Omicron variant. The United States is reporting an average of 80,131 new COVID-19 infections a day, sharply down from the more than 700,000 in mid-January, according to a Reuters analysis of official data. That has increased mobility.
But high inflation, which is eating into wage gains, could hamper economic growth. Inflation, which is well above the Federal Reserve’s 2% target, could continue to spiral after Russia invaded Ukraine on Thursday. Brent crude prices on Thursday soared above $100 per barrel for the first time since 2014. They retreated to about $98.7 a barrel on Friday.
The Federal Reserve is expected to start raising interest rates in March to tame inflation, with economists anticipating as many as seven hikes this year.
According Moody’s Analytics, oil prices at $100 per barrel would shave 0.1 percentage point from GDP growth in the second quarter and slice off 0.5 percentage point in the third quarter.
The personal consumption expenditures (PCE) price index increased 0.6% in January after rising 0.5% in December.
In the 12 months through January, the PCE price index jumped 6.1%. That was the largest rise since 1982 and followed a 5.8% year-on-year increase in December.
Excluding the volatile food and energy components, the PCE price index soared 0.5% after advancing 0.5% in December.
The so-called core PCE price index shot up 5.2% year-on-year in January, the biggest rise since 1983. The core PCE price index increased 4.9% in the 12 months through December.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
Source: One America News Network
