US Consumer Spending picks up but inflation erodes households’ purchasing power



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US Consumer Spending picks up but inflation erodes households’ purchasing power

On Friday, US Commerce Department data had unmasked that US Consumer Spending, a cornerstone of US economy accountable for roughly a 66 per cent of the nation’s entire economic activity, had picked up sharply in August, as a sky-scrapping inflation appears to be eating up the Americans’ buying power.

However, other economic data released earlier in the day had revealed that the US Fed’s benchmark inflation indicator, Core PCE (Personal Consumption Expenditure) price index, had been weaker last month than initially estimated, bolstering investors’ belief that US economic growth remained mostly tepid over third quarter of 2021 following a robust Q2, 2021, as Government stimulus had waned by a substantial margin and a rapid rise in delta cases had added to hindrances on a struggling labour market alongside supply chain constraints.

Nevertheless, in the day’s US Commerce Department data that had unveiled a shot-up in inflation indicators even as the pick-ups were not as strong as expected, came forth amid wide-spread worries that a scorching inflation might have paused consumer spending last month.

US Consumer Spending surges in September

According to US Commerce Department data, US Consumer Spending heated up by 0.8 per cent in August, while data for July was revised lower to 0.1 per cent from an initial 0.3 per cent.

Consumptions, in tandem, had been stepped up by a 1.2 per cent increase in purchases of goods, illustrating a gyration of consumers’ appetite towards goods from services, as spending increases on foods, household items alongside recreational goods among others, overall overshadowing a decline in motor vehicles sale.

Aside from that, real consumer spending rose 0.4 per cent on a year-on-year basis, while personal income rose 0.2 per cent, though saving rate had been plundered by 9.4 per cent. Concomitantly, US Core PCE Price Index, the US Fed’s benchmark inflation indicator, perked up by 0.3 per cent, while over past twelve months through August, US Core PCE price index jumped 3.6 per cent, nearly double of US Fed’s target of 2.0 per cent.

Meanwhile, addressing to growing likelihoods of a slowdown in economic activities over Q3, 2021, a senior economist at Wells Fargo in Charlotte, North Carolina, Tim Quinlan said, “Third quarter consumer spending is on track for only a scant gain.

If COVID cases keep falling and sentiment turns positive, there is scope for a more solid finish to this tumultuous year”.