U.S. Expenditures Rise Along With Inflation

The core PCE price index jumped 3.5% YOY in June, the highest hike in 30 years

The core personal consumption expenditures price index (PCE) notched a 0.4% increase last month, according to the Bureau of Economic Analysis (BEA), or 3.5% since last June, its highest annual increase in nearly 30 years. A key indicator of inflation used by the Federal Reserve to set monetary policy, the measure’s sharp ascent reflects how prices have risen rapidly for American consumers. 

However, the index did not rise quite as high as economists had forecasted, suggesting that inflationary pressures may be easing. This week, the Federal Reserve reiterated its position that higher inflation is temporary, and the Fed expects it to return to normal levels as the economy recovers from the COVID-19 slump.

“We think that inflation should move down over time,” Fed Chair Jerome Powell said at a press conference on Wednesday, though Powell admitted that he was uncertain as to when inflation would begin to taper, indicating that consumers could expect more in the near term. 

Price Hikes Spread Across Categories

Price hikes were led by energy goods and services, which soared 24.2%. Prices for durable goods were 7.2% higher. The core rate, which excludes more volatile food and energy prices, jumped 3.5%, reflecting that price increases were broadly shared across categories of goods and services. 

Increase In Incomes And Spending

The report also found personal expenditures rose 1% as American consumers spent an extra $29.3 billion in goods and $126.1 billion in services in June. Spending on pharmaceuticals, as well as gas and other energy goods made some of the greatest gains. Motor vehicles and parts were primarily responsible for declines in spending, as U.S. consumers pulled back on auto purchases, with sales falling from 17 million vehicles in May to 15.4 million in June.

Meanwhile, incomes inched up 0.1%. The report found most of the increase was due to a bump in employee compensation, as government social benefits contracted by $109.6 billion in June. Unemployment insurance also dropped, as fewer payments were made in the Pandemic Unemployment Compensation program. 

Additional reporting by Bill McColl.

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