Consumer Spending Rebounded in March Following Sluggish Winter

(CN) — Consumers resumed spending in March following two months of sluggishness, while their incomes continued to grow, the Commerce Department said Monday.

Spending rose 0.4 percent in March, following a flat February and a 0.2 percent increase in January. According to the government, the numbers are a sign that growth is accelerating.

The two-month pullback came after strong holiday spending coupled with hurricane-induced purchases in the fourth quarter.

Meanwhile, personal incomes rose a moderate 0.3 percent in March, matching the February gain.

Consumer spending is a closely watched gauge of economic growth because  it accounts for 70 percent of economic activity. Based on that measure, the economy slowed in the first quarter.

But as spending rose in March, so did inflation, which rose 1.9 percent year-over-over — the fastest pace since February 2017.

Consumer prices, as measured by the personal consumption expenditures price index, jumped 2.0 percent year-on-year last month.

Excluding the volatile food and energy sectors, the price index jumped 1.9 percent in the 12 months through March.

The so-called core PCE price index — the Federal Reserve’s preferred measure of inflation — rose 0.2 month-on-month in March after a similar gain in February.

Unemployment is currently at a 17-year low of 4.1 percent, and economists have suggested that with given the tight labor market, wages will begin to rise and that will exert an upward pressure on inflation.

The Federal reserve seeks to achieve moderate annual increases in inflation of around 2 percent but the rate has fallen below that target for the past six years.

Fed officials will hold a regular meeting this week. They are expected to keep rates unchanged after raising them in March. But many analysts believe the Fed will raise rates again in June and will end up boosting them either three or four times this year.

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