World Economy

US Inflation at 6-Year High

US Inflation at 6-Year HighUS Inflation at 6-Year High

US consumer spending rose less than forecast in May as outlays on services fell and Americans saved more of their incomes. Inflation topped the federal reserve’s goal by more than expected.

Purchases rose 0.2% from April after a 0.5% advance that was less than previously estimated, commerce department figures showed Friday. The Bloomberg survey median called for a 0.4% gain. Incomes advanced 0.4%, matching forecasts, and the fed’s preferred price gauge rose 2.3% from a year earlier, the most in six years and slightly above projections.

Adjusted for inflation, consumer spending was little changed in May, suggesting households may be taking a breather even as a solid labor market, elevated confidence and lower taxes point to an acceleration in second-quarter consumption and economic growth. At the same time, the pickup in inflation—including a core measure that’s effectively at the Fed’s 2% goal—may reinforce projections for two more interest-rate increases this year.

“The tone of the report is a little weaker momentum in spending than we’d anticipated,” said Michael Gapen, chief US economist at Barclays Plc in New York. Even so, “the overall trend in personal consumption is still consistent with acceleration” this quarter and a continuing boost from lower taxes, he said.

The fed’s preferred headline inflation gauge—tied to consumption—rose 0.2% from April, the second straight such gain. Excluding food and energy, so-called core prices also rose 0.2%, matching estimates, while the annual gain of about 2% was higher than the median estimate for 1.9%. It was the first time in six years the core index registered a 2% gain.

While the latest price data are encouraging for the fed, inflation expectations have stayed subdued—a concern recently expressed by fed chairman, Jerome Powell.


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