Consumer spending in the United States increased to a limited extent while total inflation fell slightly in the month of February. This new data indicates that the United States Federal Reserve will decide to follow through with their plan to steadily increase interest rates throughout the year even with the labor market becoming more restrictive.
The Department of Commerce announced on Monday that consumer-spending rose at a rate of 0.1% in February for the second month in a row. This news comes following the revision being made to January’s consumer spending statistic. Originally, consumer spending was reported to have risen 0.5% in January, yet it was later corrected to reflect its growth of 0.1%. Reassessments to consumer spending data is very important for consumer spending is responsible for nearly two thirds of all domestic economic activity.
The growth in consumer spending last month conforms to the projections made by economists. If the data is adjusted for inflation, then consumer spending in the month of February grew at a 0.2% clip, while it neither increased nor decreased in January.
Looking towards inflation, a price index for consumer spending decreased by 0.1% in February, which indicates how domestic inflation is retreating. This decrease comes following a 0.1% increase in January. When viewing the twelve months trailing into February, the personal consumption expenditures price index has increased 1.0%, yet it has grown 1.2% in the twelve months through January.
Keeping out food and energy prices changes the magnitude of the movement of the price index. Prices excluding food and energy gained 0.3% in January and followed that growth with a 0.1% increase in January. In the twelve months through February, the core personal consumption expenditures price index, which does not include food or energy, climbed 1.7%.
The Federal Reserve is partial to the core personal consumption expenditures price index as a means of measuring inflation, and the index is currently not meeting the Fed’s 2% target. Fed Chair Janet Yellen foreshadowed this happening when she recently announced her lack of confidence in the gains in inflation measures being able to sustain themselves.