USA-Household spending beats expectations in March, inflation soars

WASHINGTON, April 29 (Reuters) – U.S. household spending rose more than expected in March amid strong demand for services, while monthly inflation rose to its biggest since 2005.

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

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

The data was incorporated into the preliminary report on gross domestic product for the first quarter, 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 inventory accumulation 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 largest 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 a slowdown in this rise in the coming months, the strong gains of last year no longer being taken into account in the calculation.

Annual inflation, all measures taken together, 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 begin to reduce its balance sheet. (Report Lucia Mutikani, French version Augustin Turpin, said by Jean-Michel Blot)

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