Key Inflation Measure Hits New High in 30 Years
By Anneken Tappe, CNN Business
A key measure of inflation hit a new 30-year high in August, the Bureau of Economic Analysis reported on Friday.
The price index that tracks consumer spending – the PCE price index – rose 4.3% in the 12 months ending in August. It was a faster pace than July’s 4.2%. Inflation continued to grow at the fastest pace since January 1991.
Excluding food and energy prices, which tend to be volatile, the measure of inflation stood at 3.6%, where it has been since June. It remains the fastest core inflation rate since March 1991 and well above the Federal Reserve’s 2% target.
The PCE inflation indicator is one of many, and they don’t all point in the same direction: the consumer price inflation index hit a 13-year high in August, for example. But the PCE index is the Federal Reserve’s preferred measure of inflation.
The continued rise in PCE inflation has led the Fed to signal that it will begin to cut back on its emergency economic stimulus – even though the US economic recovery has shown signs of slowing in recent months.
Salary increases and price increases
Although prices rose sharply, US revenues grew only at a modest pace, up 0.2% or $ 35.5 billion. Disposable income grew even less – just 0.1% or $ 18.8 billion.
These increases were in part due to higher wages as companies try to attract and retain workers as a labor shortage hangs over many companies. In government benefits, the advance payments of the child tax credit under the US bailout helped boost revenues. Friday’s report does not yet reflect the end of improved pandemic unemployment benefits, which ended in early September.
And yet Americans kept going out to spend their money. Consumer spending rose 0.8% or $ 130.5 billion in August, roughly evenly split between goods and services.
“Households still have a long way to go given rising jobs and wages, soaring net worth (as house prices soar) and massive surplus savings,” Sal said. Guatieri, BMO’s senior economist, in a note to clients. “However, rising prices are eating away at purchasing power,” he added.
Consumers remain the backbone of the US economy. If inflation got so high that people would rather save their money than spend it, the US economy would be in a very difficult situation.
That said, the savings rate has skyrocketed during the pandemic. In August, it stood at 9.4%.
Given the continued threat of new Covid-19 infections via the Delta variant and colder months with fewer outdoor activities looming, people’s spending on services could be reduced.
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