Tue, 24 May 2022

Consumer Spending Drops as Inflation Continues to Rise

Voice of America
29 Jan 2022, 09:05 GMT+10

A key inflation indicator was up 5.8% over last year, the Commerce Department said Friday. It was the indicator's highest jump since 1982.

The rise came in the government's personal consumption expenditures index (PCE), which the Federal Reserve uses to guide interest rate moves. The PCE tracks actual consumer spending.

Another indicator, the consumer price index (CPI), jumped 7% last year, the government reported earlier this month. The CPI tracks the price of a basket of various goods.

The increased prices of goods could be behind a 0.6% drop in consumer spending in December, the department said. Consumer spending accounts for two-thirds of U.S. economic activity.

Inflation has also largely erased wage gains seen in many U.S households.

The pandemic, labor shortages and supply chain problems continue to drag on the economy.

The growing inflation adds pressure on the Federal Reserve to hike interest rates, which comes with the danger of slowing economic growth.

'No one wants to go back to the '80s, but the economy is. Can stagflation from an overly aggressive Fed be next?' Christopher Rupkey, chief economist at FWDBONDS in New York, said in an interview with Reuters. 'The Fed let its guard down and now they risk it all by saying they might have to move faster and higher on interest rates.'

The Fed could move as early as March to raise interest rates.

Some information for this report came from Reuters and The Associated Press.

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