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SUMMARY-US Consumer Spending Pauses and Inflation Rises

By Lucia Mutikani

WASHINGTON, Jun 25 (.) – US consumer spending came to a halt in May as shortages weighed on vehicle purchases, but meager supply and increased demand for services helped drive prices higher and demand higher. The Fed’s main measure of inflation posted its biggest annual rise since 1992.

The Commerce Department said Friday that the unchanged reading of consumer spending, which accounts for more than two-thirds of US economic activity, followed an upwardly revised 0.9% increase in April. Earlier, consumer spending was reported to have increased 0.5% in April.

Economists polled by . had forecast consumer spending to rise 0.4% in May.

Motor vehicles and some household appliances are in short supply due to supply problems stemming from the COVID-19 pandemic.

Spending is beginning to shift back to services, which account for two-thirds of consumption, which weighs heavily on goods.

At least 150 million Americans are fully vaccinated against the coronavirus, allowing the economy to begin to reopen and allowing people to travel, go out to dinner, and engage in other activities that were restricted during the pandemic.

“Demand for luxury services is recovering rapidly as restrictions are lowered by the pandemic, but this is offset by a slowdown in real retail sales,” said James Sweeney, chief economist at Credit Suisse in New York.

“Looking ahead, we expect overall growth in consumer spending to remain strong as the services sector continues to normalize,” he added.

FASHION SERVICES

Last month, spending on services increased by $ 74.3 billion, led by leisure, restaurants and hotels, as well as housing and utilities. Spending on goods decreased by $ 71.5 billion.

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The price index for personal consumption expenditures (PCE), excluding volatile components of food and energy, increased by 0.5% after increasing by 0.7% in April. In the 12 months to May, the so-called basic PCE price index soared to 3.4%, the biggest rise since April 1992.

In April, the basic PCE price index was 3.1% year-on-year. The basic PCE price index is the Federal Reserve’s preferred measure of inflation for its 2% flexible target.

Year-on-year inflation is also accelerating as last spring’s weak readings fade from the calculation. Although the so-called base effects probably peaked in May, inflation is likely to remain high in the short term due to supply constraints and a shortage of workers.

“Although positive base effects will decline in the second half of the year, month-to-month inflation is expected to remain high, as demand is unlikely to ease as the economy continues to reopen and supply chains continue to reopen. supply remains under pressure, “said Sam Bullard, a senior economist at Wells Fargo.

(Report by Lucia Mutikani. Edited in Spanish by Javier López de Lérida)

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