U.S. consumer spending rose more than expected in June as Americans paid more for goods and services, with monthly inflation jumping to the highest since 2005.
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 1.1% last month, the Commerce Department said on Friday. Data for May was revised to show spending gained 0.3% instead of 0.2% as previously reported.
Economists polled by Reuters even predicted consumer spending would rise by 0.9%. This data was included in the preliminary gross domestic product report for the second quarter, which was published on Thursday. The report showed inflation-adjusted consumer spending rose at the slowest pace in two years amid a decline in purchases of goods, particularly food, due to higher prices.
Gross domestic product contracted at an annual rate of 0.9% last quarter after declining at a rate of 1.6% in the first quarter.
Inflation rose in June. The price index of personal consumption expenditures (PCE) jumped 1.0% last month. It was the biggest increase since September 2005 and followed a 0.6% rise in May. In the 12 months through June, the PCE price index rose 6.8%, the largest increase since January 1982. The PCE price index rose 6.3% year over year in May.
Excluding volatile food and energy components, the PCE price index rose 0.6% after rising 0.3% in May. The core PCE price index rose 4.8% on a year-over-year basis in June after rising 4.7% in May.
The Fed on Thursday raised its policy rate by another three-quarters of a percentage point. It has now raised that rate by 225 basis points since March. Overall, it brings an indication that inflation is growing faster and consumers are getting more and more affected.
