Consumer spending increased more than expected in March due to high demand for services in the US, while monthly inflation showed the fastest increase since 2005.
The US Department of Commerce, in its report published on Friday, noted that consumer spending, which accounts for two-thirds of economic activity in the US, increased by 1.1 percent in March. In February, consumer spending data, which was recorded to have increased by 2 per thousand, was revised and increased to 6 per thousand.
Economists surveyed by the Reuters news agency predicted that consumer spending would increase by 7 per thousand in March. One of the factors causing the increase in expenditures is high prices. However, the fact that consumer expenditures entered the second quarter of the year with a strong momentum reveals that the economy is also strong.
The latest data is also included in the first-quarter gross domestic product report released on Thursday, which showed the economy contracting by 1.4 percent year-on-year due to the wider trade deficit. The reason for this contraction is increased imports and slower accumulation in inventory compared to the fourth quarter of 2021.
Consumer spending, which increased in the last quarter, resulted in an increase in domestic demand together with company investments.
Personal consumption expenditures price index, on the other hand, increased by 9 per thousand in March, revealing the biggest gain since 2005. The personal consumption expenditures price index, which increased by 5 per thousand in February, rose by 6.6 percent during the 12 months before March. It was the biggest annual gain since 1982.
In March, the peak point was reached in the personal consumption expenditures price index. Economists predict a slowdown in the annual index in the coming months. This is because gains from last year will begin to be excluded from the calculations.
On the other hand, the shift in expenditures from products to services indicates that the pressures on supply chains will ease.
Excluding the turbulent food and energy components, the personal consumption expenditures price index rose by 3 per thousand in March. The core personal consumption expenditures price index increased by 5.2 percent in March compared to a year ago.
The annual inflation rate was recorded well above the 2 percent target of the US Federal Reserve (FED). The FED, which increased the policy rate by 25 basis points in March, is expected to increase the interest rates by 50 basis points next Wednesday.