A U.S. inflation measurement closely watched by the Federal Reserve remained at its highest level in about three decades as consumer spending rebounded last month despite the spread of the Delta variant of Covid-19.
The Department of Commerce’s core personal consumption expenditure index, which excludes volatile food and energy costs, rose 3.6 percent last month from a year earlier. This corresponded to the consensus forecasts at the level for three months and reached the highest level since 1991. Compared to the previous month, the core PCE rose by 0.3 percent.
The wider PCE track rose 4.3 percent year-over-year, its highest level since January 1991.
The data comes as the Federal Reserve pushes ahead with a cut in its stimulus plan that could come as early as November and a growing number of Fed officials anticipate a rate hike next year.
The central bank’s 2 percent inflation target has already been met as supply chain problems coupled with strong consumer demand have pushed prices higher, and economists argue that price pressures will ease as the bottlenecks resolve.
Friday’s report also showed US consumer spending rose 0.8 percent last month, after falling 0.1 percent in July. Americans increased their spending on goods and services, including food and drink, health care, and personal care and clothing services, while continuing to dine out. However, spending on cars and spare parts fell.
“An increase in Covid infections, insufficient inventory and increased prices limited consumer spending at the end of the summer,” said Lydia Boussour, economist at Oxford Economics. “Still, consumers are not limiting,” she added.
The spike in spending came when personal incomes rose 0.2 percent, missing expectations of a 0.3 percent increase, and after a 1.1 percent increase in July.
Income was increased by higher wages and salaries from private employers, as well as government benefits such as child tax advances, which were partially offset by a decline in federal extended unemployment benefits.