United States: Household spending exceeds expectations in March, inflation soars

WASHINGTON (Reuters) – U.S. household spending rose more than expected in March amid strong demand for services, while monthly inflation rose to its biggest rise since 2005.

The U.S. Commerce Department announced on Friday that household spending, which accounts for more than two-thirds of U.S. economic activity, rose 1.1% last month. Data for February was revised upwards, with spending rising 0.6% from the 0.2% previously reported.

Economists polled by Reuters had expected spending to increase by 0.7%. Although part of the increase was due to higher prices, the solid growth in spending at the start of the second quarter reflects the underlying strength of the US economy.

The data was incorporated into the preliminary first-quarter gross domestic product report, released Thursday, which shows the economy contracted at an annualized rate of 1.4% due to a larger trade deficit. A situation due to the increase in imports and the slowdown in the accumulation of inventories compared to the sustained pace of the fourth quarter.

The personal consumption expenditure (PCE) price index rose 0.9% in March, the biggest rise since 2005, after rising 0.5% in February. In the 12 months to March, the PCE price index rose 6.6%. This is the biggest annual rise since 1982 and follows a 6.3% year-on-year increase in February.

However, March probably marked a peak in the rise of the PCE price index. Economists expect that rise to slow in coming months, as last year’s big gains are no longer factored into the calculation.

Annual inflation, all measures combined, has exceeded the 2% target set by the Federal Reserve and the US central bank is expected to raise interest rates by 50 basis points next Wednesday. The Fed raised its key interest rate by 25 basis points in March and it should soon start reducing its balance sheet.

(Report Lucia Mutikani, French version Augustin Turpin, edited by Jean-Michel Bélot)

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