Rising inflation does not stop consumer spending, new data shows

WASHINGTON – Consumer spending in the United States rebounded by a solid 1.3% in October despite inflation which, over the past year, has accelerated faster than it has ever been in more than three decades.

The jump in consumer spending last month was double the 0.6% gain in September, the Commerce Department reported on Wednesday.

At the same time, consumer prices rose 5% from the same period last year, the fastest 12-month gain since the same period ending in November 1990. The price spike this year contributed to the 1.6% increase in spending in November. , despite the inflation adjustment, spending was still up 0.7% after an inflation-adjusted gain of 0.3% in September.

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Personal income, which is fueling future spending increases, rose 0.5% in October after falling 1% in September, reflecting a decline in government support.

Americans’ pay has risen as businesses desperately seek workers, and government stimulus checks earlier this year have further inflated their bank accounts. It bodes well for the holiday season and major U.S. retailers say they’re ready after some companies, like Walmart and Target, has gone to great lengths to ensure their shelves are full despite widespread shortages.

Analysts said the solid spending increase in October, the first month of the new quarter, was encouraging evidence that overall economic growth, which slowed to a modest 2.1% annual rate in the third quarter, will rebound. important during the current quarter. , as long as the recent increase in COVID cases and concerns about inflation do not dampen holiday shopping.

In an advisory note Wednesday, the University of Michigan announced that its consumer confidence index fell 4.3 percentage points to 67.4 this month, its lowest level since November 2011, weighed down by fears of inflation.

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And there are areas in the United States that are experiencing a COVID-19 outbreak cases that could worsen as families travel across the country for the Thanksgiving holiday.

The 5% rise in consumer prices shown in Wednesday’s report has continued a series of high readings in recent months as demand outstrips supply, in part reflecting shortages due to booming supply chains .

President Joe Biden acted on Tuesday to counter soaring gasoline prices in order a release the country’s strategic oil reserve, but economists expect the move to have minimal effect on soaring gas prices.

The data released Wednesday, including the snapshot of what Americans pay for everyday goods, is preferred by the Federal Reserve because it tracks changes in what people buy, unlike the price index at consumption, which measures a fixed basket of goods.

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The Fed seeks to conduct its interest rate policies to achieve annual gains in its prime price index of around 2%. However, over the past two decades, inflation has still not reached the Fed’s 2% inflation target.

Fed officials at their November meeting announced the start of a cut to its $ 120 billion per month bond purchases the central bank had made to put downward pressure on rates. long-term interest.

This marked the Fed’s first move to withdraw the massive support it provided to the economy. Economists expect this to be followed in the second half of 2022 by an increase in the Fed’s benchmark interest rate, which impacts millions of consumer and business loans. This rate is at a record high of 0% to 0.25% since the start of the pandemic in the spring of 2020.

And if inflation continues to exceed the Fed’s target, which Fed Chairman Jerome Powell has described for months as transient, economists will increase the odds of an accelerated reduction in monthly bond purchases. the Fed, as well as earlier action on its first interest rate hikes.

Wednesday’s expenditure and income report showed that consumers increased their purchases of durable goods such as cars by 3.3% in October, while spending on non-durable goods such as clothing increased by 1 , 6%. Spending on services rose 0.9% in October.

With spending exceeding income, the personal savings rate fell to 7.3% in October from 8.2% in September, but remains at a high level.

Economists expect the high level of savings to continue to support higher spending by Americans during the holiday shopping season and into the next year.

“Although consumer confidence fell in the fall due to high inflation, households continue to spend,” said Gus Faucher, chief economist at PNC Financial. “Household income has jumped with stimulus payments and increased unemployment insurance benefits.”