Consumer Spending Rises as Inflation Pressures Grow

(CN) – U.S. consumer spending rose 0.4 percent in July, continuing a months-long trend in strong growth, the Commerce Department said Thursday.

The expenditures on goods and services suggested the economy continues to be in robust health. But at the same time, underlying inflation is also on the rise, hitting the Federal Reserve’s 2 percent target for the second time this year.

Consumer spending accounts for more than two-thirds of U.S. economic activity. Strong consumer spending during the second quarter of the year helped push the nation’s gross domestic product to a 4.2 percent annualized growth rate, almost double the 2.2 percent pace recorded for the first quarter.

Spending on goods rose 0.2 percent last month after slipping 0.1 percent in June. Outlays on services increased 0.4 percent after surging 0.6 percent in the prior month.

With demand rising last month, prices continued their gradual upward trend. The personal consumption expenditures price index excluding the volatile food and energy components rose 0.2 percent after edging up 0.1 percent in June.

As a result,  the year-on-year increase in the core PCE price index — the Federal Reserve’s preferred inflation measure — to 2.0 percent from 1.9 percent in June.

The index previously hit the Fed’s 2 percent inflation target in March. That was the first time since April 2012.

Personal income rose 0.3 percent in JUly after increasing 0.4 percent in the prior month. Wages gained 0.4 percent. The saving rate declined to 6.7 percent last month from 6.8 percent in June.

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