US Inflation Data (PCE) Declines, Is This Good News?

 U.S. consumer spending reportedly increased more than expected in June following the Covid-19 vaccination program that has driven an increase in demand for recreational services. Yet part of the increase reflected higher prices, with annual inflation rising higher than the Federal Reserve’s 2% target.

Consumer spending, which accounts for more than two -thirds of U.S. economic activity, rose 1.0% last month after falling 0.1% in May based on a Commerce Department report on Friday.

Nearly half of the U.S. population has been vaccinated, which allows Americans to travel, visit restaurants, and attend events. In addition, spending on goods remained strong.

Overall, consumer spending increased at an annual rate of 11.8% in the second quarter and accounted for the bulk of the economic growth rate of 6.5%.

With demand exceeding supply, inflation is thus increasing. The price index of personal consumption expenditure (PCE), excluding volatile food and energy components, rose 0.4% in June after rising 0.5% in May.

U.S. central bank on Wednesday kept the benchmark overnight interest rate near zero and left the bond -buying program unchanged. Fed Chairman Jerome Powell, who linked high inflation to supply constraints as the economy reopened,

With fiscal growth fading and Covid-19 cases increasing in states with lower vaccination rates then consumer spending is expected to continue to rise.

The US dollar index reportedly strengthened 0.06% to a trading level of 91.922 against major currencies.

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