The US Economy’s Impact on Inflation


May 2018

By Selina Stoller, Summit Consumer Receivables Acquisitions, LLC

U.S. consumer prices accelerated through March with underlying inflation surging near the Federal Reserve’s 2 percent target.

According to CNBC, the rise in the annual inflation measures reported by the Commerce Department was anticipated by economists and federal officials. It is not expected to change the U.S. central bank’s gradual pace of interest rate increases.

Consumer prices as measured by the personal consumption expenditures (PCE) price index jumped 2.0 percent year-on-year in March. The PCE price index was unchanged on a monthly basis after advancing 0.2 percent in February.

Reuters reports inflation is rising thanks to a tightening labor market. The government reported last Friday that wages and salaries recorded their biggest increase in 11 years in the first quarter. This could fan inflation by an anticipated pickup in economic growth driven by new tax legislation.

The Commerce Department’s new report also shows consumer spending increased 0.4 percent in March after being unchanged in February. Consumer spending accounted for more than two-thirds of the U.S. economic activity and grew at a 1.1 percent annualized rate in the first quarter of 2018.

Consumer spending in March was lifted by a rise in purchases of long-lasting goods (i.e. motor vehicles) along with an increase in recreational goods.  Cooler temperatures in March boosted demand for heating, leading to a rise in household electricity and gas purchases.

As result of the weakness in consumer spending, the economy grew at a 2.3 percent rate in the first quarter after expanding at a 2.9 percent pace in the final three months of 2017.

  • 10 May, 2018
  • Josh Smith

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