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US prices rose 3.9% last month from May 2020: govt

·2-min read
A rise in energy prices accounted for the bulk of the increase in the May PCE price index, government data said

Prices in the United States rose 3.9 percent in May from the same month in 2020 as vaccines allowed the economy to bounce back from the Covid-19 crisis, government data said Friday.

Much of the increase reported in the Commerce Department's May personal consumption expenditures (PCE) data came from a 27.4 percent rise in energy prices, while food prices gained 0.4 percent.

The data showed consumers steering their dollars away from expensive goods and towards restaurants, hotels and recreation activities that had been disrupted during the pandemic, but spending overall increased just $2.9 billion, less than expected and basically flat from the month prior.

Personal income fell two percent, less than forecast, in what the report said was due to the fading of government stimulus payments approved in March.

Gregory Daco of Oxford Economics said the data indicate consumers will continue to spend throughout the year as receding virus cases allow normal life to resume.

"Strong fundamentals continue to underpin consumer spending including an improving health situation, healthy household balance sheets, rising employment and wages and... excess savings," he said in an analysis.

"We foresee consumer spending growing around nine percent this year -- the strongest performance since 1946."

Markets and economists have been paying particularly close attention to the PCE price index, since the data is what the Federal Reserve uses to gauge inflation.

With prices spiking as the world's largest economy reopens, debate has erupted over whether the increase will force the Fed to raise rates sooner than expected, or if it will be temporary.

While the 3.9 percent year-on-year growth was the highest since 2008, Daco said "we don't foresee runaway inflation." Compared to April, prices rose 0.4 percent, slower than that month's rate.

The data showed spending on services overall rose $74.3 billion, while goods purchases declined $71.5 billion.

The personal savings rate declined to 12.4 percent, though consumers still had a massive $2.3 trillion in the bank, the report said.

cs/ec

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