Another key measure of inflation hit a 40-year high in June, a month marked by a record hike in gas prices.
The personal consumption expenditures price index, which measures the change in the prices of goods and services purchased by consumers, rose 6.8% in June compared to the same period last year, according to data released Friday by the Bureau of Economic Analysis.
That exceeds a previous 40-year high of 6.6% in March of this year and is down 6.9% year-over-year in January 1982, when inflation was slowing from one of the highest levels in US history.
Before June, the PCE index held steady at 6.3% in May and April. However, June saw gas prices rise to record levels, and the PCE price index reversed those gains: food prices rose 11.2% and energy prices increased 43.5%, according to the BEA. On a monthly basis, the PCE price index was up 1% compared to May.
After excluding volatile food and energy prices, the core personal consumption index – the inflation indicator that the Federal Reserve closely monitors – rose 4.8% from a year ago, up slightly from May but down from 5.3% in February.
Helped by rising energy prices push CPIanother key measure of inflation, to a nearly 41-year high in June, according to data from the Bureau of Labor Statistics released earlier this month.
BEA data on Friday showed that Americans’ incomes grew 0.6% month over month, disposable income grew 0.7% and spending jumped 1.1%. However, when inflation is taken into account, consumer spending increased by just 0.1% and disposable income decreased by 0.3% month over month.
Scott Brave, chief consumer spending economist at Morning Consult, said consumer spending is slowing, mostly due to inflation.
“Inflation-adjusted personal disposable incomes fell again in June, and they’ve been on a downward trend for more than a year now,” Brave told CNN Business in an interview. “And that’s just pressure, it’s putting pressure on the consumer to react, and I think we’re getting to that point now where growth is definitely slowing down.”
Low-income families were hit first, he said, and were hit hardest.
“Recently, we’re starting to see this filtering in middle-income families as well,” he said. “They’ve also started to pull back even more from spending and have to adjust their spending allocations.”
Understandably, consumers are not satisfied with the state of the economy at the moment, especially high inflation.
The Consumer Confidence Index for the month of July stood at 51.5, according to the final reading of data from the University of Michigan Consumer Surveys. This is a little higher than Initial number for July 51.1 and settles over All-time low of 50 set in June.
“Strong consumer spending was underpinned by strong labor markets and an anticipation of higher incomes; however, as price hikes continue to erode those incomes, consumers are adjusting their spending habits to adapt,” pollster director Joanne Hsu said in a statement. Higher unemployment may be on the horizon, this decline in consumer spending is likely to be amplified if their concerns about the future course of the labor market continue to grow.”
Consumers in the July survey expect inflation to average 5.2% over the next year and about 2.9% in the next five years.
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