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WASHINGTON: US consumer spending barely rose in July, but inflation eased considerably, which could give the Federal Reserve room to scale back its aggressive interest rate increases, according to Reuters.
Consumer spending, which accounts for more than two-thirds of US economic activity, edged up 0.1 percent last month, the Commerce Department said on Friday. Data for June was revised slightly down to show outlays advancing 1.0 percent instead of 1.1 percent as previously reported.
Economists polled by Reuters had forecast consumer spending would gain 0.4 percent.
The national average gasoline price dropped to about $4.27 per gallon in the last week of July after hitting an all-time high just above $5 in mid-June, according to data from motorist advocacy group AAA. That likely freed money for spending elsewhere.
Prices of apparel and services like air travel, hotel and motel accommodation also declined in July, curbing inflation.
A moderate pace of consumer spending in the second quarter helped to blunt the drag on the economy from a sharp slowdown in inventory accumulation caused by supply chain bottlenecks.
Gross domestic product contracted at a 0.6 percent annualized rate last quarter after shrinking at a 1.6 percent pace in the first quarter.
The economy is, however, not in a recession. When measured from the income side, the economy grew at a 1.4 percent pace, slowing from the January-March quarter’s 1.8 percent rate, the government reported on Thursday.
Risks of a downturn remain as the Federal Reserve aggressively tightens monetary policy to control inflation. There is, however, cautious optimism that the US central bank could slow the pace of its rate hikes if inflation continues to moderate.
The personal consumption expenditures price index dipped 0.1 percent last month after surging 1.0 percent in June. In the 12 months through July, the PCE price index increased 6.3 percent. The PCE price index shot up 6.8 percent on a year-on-year basis in June.
Excluding the volatile food and energy components, the PCE price index gained 0.1 percent after racing 0.6 percent in June. The so-called core PCE price index increased 4.6 percent on a year-on-year basis in July after rising 4.8 percent in June.
Fed officials are closely watching the PCE price indexes, in addition to the consumer price index. Though oil prices have dropped significantly, rental costs have remained hot, leaving some economists hesitant to declare that inflation has peaked.
Fed Chair Jerome Powell’s address on Friday at the annual Jackson Hole global central banking conference in Wyoming could shed more light on how much further US borrowing costs need to rise.