A key inflation indicator increased to its highest level in 38 years while consumer demand remained strong despite soaring prices, the Commerce Department announced Friday.
The Commerce Department’s personal consumption expenditure (PCE) index grew 5.2% in January, exceeding the 5.1% Dow Jones estimate, the Commerce Department reported. The PCE is the Federal Reserve’s preferred measure of inflation, and January’s figure marks monthly the largest year-over-year increase since April 1983.
The PCE increased 0.5% on a monthly basis in January, the same pace as the previous three months, according to the Commerce Department. Including food and energy prices, overall PCE surged 6.1% since January 2021, marking the most annual growth since February 1982.
Continued price increases place further pressure on the Federal Reserve to hike interest rates to cool the economy and control the near decade-high inflation, Citigroup economist Veronica Clark told The Wall Street Journal.
“The consistent trend of even higher inflation should keep the Fed pursuing much tighter monetary policy in the coming months,” Clark said.
Friday’s report also showed that consumer spending accelerated faster than expected, growing 2.1% in January rather than the 1.6% estimate. Personal savings totaled $1.17 trillion, or 6.4%, the lowest figure since 2013.
“What is even more concerning is that we are seeing personal savings collapse in real-time,” E.J Antoni, an economist at the Texas Public Policy Institute, told the Daily Caller News Foundation.
The “savings rate has been nearly cut in half since July when the savings rate was around 10%,” Antoni said. “When you combine that with consumer credit data, it’s clear that people are depleting savings to take on debt to pay for the higher cost of living.”
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