US consumer expenditure rises in August: Although US consumer spending increased in August, the Federal Reserve’s aggressive interest rate increases to combat persistently high inflation dampened demand. As a result, this might restrict the predicted increase in economic activity this quarter.
Consumer spending, which makes up more than two-thirds of US economic activity, rose by 0.4% last month after decreasing by 0.2% in July, according to data released by the Commerce Department on Friday. Reuters surveyed economists who predicted a 0.2% increase in consumer expenditure.
Gasoline prices fell, giving households a break and more money for shopping, vacations, and eating out.
According to information provided by the US Energy Information Administration. The price of gas decreased by 11.8% from July to August, reaching $3.691 a gallon.
Nevertheless, inflation increased last month.
After declining 0.1% in July, the personal consumption expenditures (PCE) price index increased 0.3% last month.
The PCE price index rose 6.2% over the previous 12 months after a 6.4% gain in July.
After being constant in July, the PCE price index increased by 0.6% when the volatile food and energy components excluded.
After rising 4.7% in July, the so-called core PCE price index increased 4.9% year over year in August.
For its 2% inflation objective, the Fed keeps an eye on the PCE price indices. However, other measurements of inflation are far higher.
In August, the consumer price index rose 8.3% over the same period last year.
The US central bank increased its benchmark interest rate this week by 75 basis points, marking the third time in a row that it has done so, and it hinted that more hikes might follow this year.
The Fed has increased its policy rate since March, from near zero to the current range of 3.00% to 3.25%.
The Fed increased its median prediction for core PCE inflation from its prior estimate in June of 4.3% to 4.5% this year.
Its projection for core inflation in 2023 increased from the previously anticipated 2.7% to 3.1% in June.
August saw a very little increase in consumer expenditure after inflation.
This means that consumer spending may be subdued this quarter after helping to mitigate the adverse effects of a slowdown in the rate of inventory buildup in the second quarter on the nation’s gross domestic product.
After contracting at a 1.6% pace between January and March. The economy declined at an annualized rate of 0.6% last quarter. However, the third quarter’s growth predicted to reach 2.1%, primarily due to a declining deficit.
A buildup of stock, some of which may unsold items due to sluggish demand, is also anticipated to aid GDP growth this quarter.