WASHINGTON– Consumers spent slightly more in August than the previous month, a sign that the economy is holding up even as inflation pushes up the prices of food, rent and other essentials.
Americans increased their spending in stores and on services such as haircuts by 0.4% in August, following a 0.2% decline in July, the Commerce Department said Friday. The government report also showed that a closely watched inflation indicator by the Federal Reserve rose 0.3% last month, faster than in July.
The figures suggest the economy is showing some resilience despite the sharp rise in interest rates, violent stock market swings and high inflation. On Thursday, the government confirmed that the economy contracted in the first six months of the year.
Still, there are signs that rising prices are weighing on buyers. Consumer spending, adjusted for inflation, grew at an annual rate of 2% in the April-June quarter. Still, July and August data indicate spending is on track to slow to around 0.5% annual growth in the July-September quarter, economists said.
Compared to a year ago, prices jumped 6.2%, down from a 6.4% annual gain in July. That figure is lower than the best-known consumer price index released earlier this month, which showed prices rose 8.3% in August from a year earlier.
The two indices differ for several reasons. For example, the Consumer Price Index places much more weight on rents and housing costs, which are steadily rising, than the measure released Friday, known as the Personal Consumption Expenditure Price Index.
Excluding the volatile food and energy categories, underlying prices rose 0.6%, much faster than July’s flat reading. They were up 4.9% from a year earlier, up from July’s figure of 4.6%.
Adjusted for inflation, consumer spending rose 0.1% last month, after falling slightly in July.
The inflation figures in Friday’s report echo those released earlier this month, with underlying prices rising faster than headline inflation. Falling gasoline prices reduced headline inflation, while stubbornly high costs for housing, cars and services such as health care and haircuts pushed core prices higher.
Even adjusted for inflation, consumer spending rose 0.1% last month, after declining slightly in July.
Friday’s report also showed personal income rose 0.3% in August for the second month in a row. Adjusted for price increases, disposable income – what remains after taxes – rose 0.1%, after a strong 0.5% gain in July. These income gains will help fuel spending.
But over a longer period, incomes lag inflation. In the April-June quarter, inflation-adjusted disposable income fell 1.5% year-on-year.
The Federal Reserve is seeking to tame inflation with its fastest series of interest rate hikes in four decades. It pushed its benchmark short-term rate to a range of 3% to 3.25%, the highest since early 2008, from near zero in March.
Fed Chairman Jerome Powell and other officials have repeatedly stressed the Fed’s determination to bring prices down, even if their rate hikes lead to layoffs and a rising unemployment rate.
The Fed intends to raise interest rates to slow borrowing and spending, which in turn should reduce inflationary pressures in the economy.
Inflation has soared globally, contributing to economic and financial turmoil in the UK, Europe and many developing countries from Turkey to Argentina.
Also on Friday, the 19 countries that use the euro reported inflation jumped 10% from a year earlier as prices for natural gas and electricity soared. European countries are grappling with an energy crisis following Russia’s invasion of Ukraine, as Russia cut its natural gas supplies to the European Union.