By Nathalie Voit
Consumers continued to spend aggressively in January despite a key inflation measure that revealed the largest annual price gains for goods and services since 1983, the Department of Commerce said Feb. 25 in a news release.
The core personal consumption expenditures price index, the Federal Reserve’s inflation indicator of choice, rose 5.2% in January from one year ago. This was the largest year-on-year increase since April 1983.
Headline inflation, which includes the volatile food and energy categories, was up 6.1% in the twelve months leading through January. This was the strongest annual price jump since February 1982.
According to the report, energy prices climbed 25.9% from last year, while food prices rose 6.7% year-over-year.
Month-over-month, core PCE rose 0.6% and headline PCE increased 0.5%. Price gains were fueled by an increase in energy and food prices. Food costs in January climbed 0.9%, while energy goods and services were up 1.1%.
High inflation did not deter consumers from spending vigorously. Consumer spending rose 2.1% for the month, easily bypassing the 1.6% forecast, CNBC said. In contrast, consumer spending in December fell 0.8%.
Personal spending increased despite static overall incomes. Personal income levels in January remained flat from December, a slight reprieve from the expected 0.3% drop predicted by economists, according to CNBC. Meanwhile, real disposable income declined 0.5%, driven by the expiration of child tax credit payments, the report said.
Personal savings in January totaled $1.17 trillion. The personal saving rate, or saving as a percentage of disposable income, was 6.4%, the lowest rate since December 2013.
“Overall, the real economy appears to be in stronger health than we feared, suggesting that the Fed will push on with its planned rate hikes starting in March, although the Ukraine conflict makes a 50 [basis point] hike less likely,” wrote chief U.S. economist at Capital Economics Paul Ashworth, according to CNBC.