August 29, 2021

Inflation Begins to Show Signs of Slowing Growth?

 U.S. consumer spending reported a slowdown in July due to shortages in motor vehicles that triggered an increase in personal service spending. This carries an indication that economic growth will moderate in the third quarter amid an increase in Covid-19 infections.

Consumer spending, which accounts for more than two -thirds of U.S. economic activity, rose 0.3% last month as reported by the Commerce Department on Friday. Data for the revised June showed spending increased 1.1% instead of 1.0% as previously reported.

On the other hand, this reading is also in line with the expectations of economists who are targeting a 0.3%increase. There has been demand in travel and holiday services but the expenditure is not enough to offset the decline in goods expenditure.

Credit card data shows spending on services such as flights and cruises as well as hotels and motels slowed this month. This leads to indications that people are beginning to be cautious amid an increase in Covid-19 delta variant infections.

On Thursday, the report reported consumer spending grew at an annual rate of 11.9% in the second quarter, accounting for the bulk of economic growth which recorded a reading of 6.6%.

At the same time, inflation continued to rise in July due to supply constraints and economic opening.

The price index of personal consumption expenditure (PCE), excluding volatile food and energy components, rose 0.3% in July after rising 0.5% in June. In the 12 months to July, the core PCE price index rose 3.6% after a similar rise in June.

Markets continued to focus on Fed manager Jerome Powell’s speech ahead of the Jackson Hole economic conference on Friday to get more clues on bond buying.