US Consumer Spending Slows in February; inflation cools down

US consumer spending increased moderately in February, and while inflation shows signs of cooling, it has remained elevated, which could prompt the Federal Reserve to raise interest rates again this year.

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.2 percent last month, the Commerce Department said on Friday. January data was revised to show spending grew 2.0% rather than 1.8% as previously reported.

Economists polled by Reuters had expected consumer spending to rise by 0.3%.

Consumer spending also slowed on the back of modest income gains, as the momentum of the largest cost-of-living adjustment since 1981 for Social Security recipients petered out in January.

January’s upward revision and last month’s gain put consumer spending on a higher growth path in the first quarter, after rising at its slowest pace in two-and-a-half years in the October-December quarter.

Financial market stress following the recent collapse of two regional banks has increased the risk of a recession later this year. Banks have tightened lending standards, which could make it harder for households to access credit, weighing on demand.

Last week, the Fed raised its key interest rate by 25 percentage points but indicated it was halting further hikes in borrowing costs in a nod to the financial market turmoil. The US central bank has raised its key interest rate by a total of 475 basis points since last March, from near zero to the current range of between 4.75% and 5.00%.

The PCE inflation index rose 0.3% last month, after accelerating 0.6% in January. In the 12 months to February, the PCE accumulates a high of 5.0%, after 5.3% in January.

Excluding volatile food and energy components, the PCE price index rose 0.3%, compared to 0.5% in January. The so-called core price index advanced 4.6% year-on-year in February, up from 4.7% in January. The Fed tracks the PCE index for its 2% inflation target.

Source: Terra

Rose

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