FedEx Establishes Direct Presence in Nigeria to Support Customers with International TradeRead more Open Society Foundations (OSF) Award $1.1 Million Grant to Afrobarometer to Spur Future GrowthRead more The annual Global Impact Conference 2022 brings together visionary business leaders to revolutionize educational systems and inspire collaborative actionRead more APO Group announces content partnership with Pan-African broadcaster VoxAfricaRead more MainOne, an Equinix Company’s MDXi Appolonia Achieves Tier III Constructed Facility certification (TCCF), Now Most Certified Data Center in GhanaRead more United Nations High Commissioner for Refugees (UNHCR) warns rising tide of hunger, insecurity, and underfunding worsening gender-based violence risksRead more The Royal Thai Embassy presents the cultures of Thailand at the Association of Southeast Asian Nations (ASEAN) Festival in KenyaRead more Climate change is the biggest global threat, young people in Africa and Europe tell European Investment Bank (EIB), Debating Africa and Debating EuropeRead more $2 million in prizes awarded at Conference of the Parties (COP27) to African youth-led businessesRead more Africa and Europe’s top business and public sector leaders gather to chart Africa’s economic rebirthRead more

US inflation high but stable in May as spending slows

show caption
US inflation remains high but the price wave may have crested, as consumers pull back on spending./AFP
Print Friendly and PDF

Jul 01, 2022 - 03:48 AM

WASHINGTON — A key US inflation measure showed price increases held steady in the 12 months ended in May, while consumer spending growth slowed sharply, a good sign in the battle against soaring prices.

Any sign of moderation will be a boon to President Joe Biden whose approval ratings have tumbled, as his administration has struggled to find effective tools to help American families feeling the pain of surging gasoline, food and housing prices.

The trend also offers comfort to the Federal Reserve, showing its aggressive interest rate strategy is starting to have an impact to quell the fastest surge in inflation in more than 40 years.

The personal consumption expenditures (PCE) price index rose 6.3 percent compared to May 2021, still high but the same pace as in the prior month, the Commerce Department reported Thursday.

The index jumped 0.6 percent compared to April, much faster than in the prior month, but slightly below what economists had projected.

But spending edged up just 0.2 percent, less than half the increase in April and part of a steady downward drift as consumers pull back amid surging prices.

Buoyed by a stockpile of savings, helped by massive government aid, consumers have been the lynchpin in the rapid US recovery from the pandemic downturn.

But strong demand clashed with global supply chain snarls and the world’s largest economy has been battered for months by a cresting inflation wave, made more painful by the surge in energy prices sparked by the Russian invasion of Ukraine in late February.

Excluding volatile food and energy prices, “core” PCE rose 0.3 percent in the month, the same as in April, while the 12-month pace slowed slightly to 4.7 percent, the report said.

Fed inflation battle 

Brian Deese, head of the White House National Economic Council, noted that the three-month annual average for core PCE fell to four percent from 5.2 percent.

“That is important moderation that we’re seeing,” he said on CNBC.

However, he said the headline continues to be driven by higher energy prices.

Energy prices jumped four percent in the month, after dropping in April, and are 35.8 percent higher than May 2021, the data showed.

The PCE price index is the Federal Reserve’s preferred inflation gauge, as it reflects consumers’ actual spending, including shifts to lower cost items, unlike the more well-known consumer price index, which jumped 8.6 percent in May.

PCE also gives less weight to things like rent, vehicles and airline fares, which have contributed to the blistering pace of the CPI rise.

The Fed early this month announced the biggest hike in the benchmark lending rate in nearly 30 years, a three-quarter point increase that was the third step in its counteroffensive against rising inflation, as it aims to cool demand.

Policymakers have signaled there is a good chance of another similar increase in late July, followed by more big steps in coming months.

That has raised concerns the Fed could push the economy into a recession — a price Fed Chair Jerome Powell signaled the central bank is willing to pay to control inflation.

Slower spending 

The signs of consumers pulling back will weigh on second quarter GDP growth, after the Commerce Department revised first-quarter consumer spending sharply lower, cutting it to 1.8 percent from 3.1 percent, as the economy contracted 1.6 percent.

Diane Swonk of Grant Thornton estimates that “consumers have drained about $600 billion of the excess $2.5 trillion in savings they amassed during the pandemic to deal with the bite of higher prices.”

The key driver of the slower consumption growth in May was the sharp drop in spending on big-ticket manufactured items, that economists note reflects a pull back on vehicle sales.

Spending on services rose 0.7 percent in the month, the same as in April.

MAORANDCITIES.COM uses both Facebook and Disqus comment systems to make it easier for you to contribute. We encourage all readers to share their views on our articles and blog posts. All comments should be relevant to the topic. By posting, you agree to our Privacy Policy. We are committed to maintaining a lively but civil forum for discussion, so we ask you to avoid personal attacks, name-calling, foul language or other inappropriate behavior. Please keep your comments relevant and respectful. By leaving the ‘Post to Facebook’ box selected – when using Facebook comment system – your comment will be published to your Facebook profile in addition to the space below. If you encounter a comment that is abusive, click the “X” in the upper right corner of the Facebook comment box to report spam or abuse. You can also email us.