A key US inflation gauge continued to climb last month and income shot higher as the economy bounces back from last year's downturn, according to government data released Friday.
The personal consumption expenditures (PCE) price index rose at a rapid 4.2 percent pace in July compared to the same month in 2020, slightly faster than the rate in June, the Commerce Department said.
Meanwhile, income rose 1.1 percent compared to the month prior, far above expectations, but spending cooled to 0.3 percent, in what analysts viewed as a consequence of the fast-spreading Delta variant of Covid-19 making some consumers hesitant.
"While pandemic fatigue is setting in and leading to strong emotional responses, we believe cooler consumer spending growth is more likely than consumers retrenching and the economy going into reverse," Lydia Boussour of Oxford Economics said.
The Commerce Department credited the spike in incomes to government policies like the expanded Child Tax Credit approved in President Joe Biden's March stimulus package, while increases in employee compensation also played a role.
While the US economy is generally on the upswing, the return to normalcy is complicated by supply bottlenecks as well as labor shortages that have pushed some employers to hike wages.
That's caused inflation to spike, with July's increase above the four percent year-on-year jump seen in June.
With the Federal Reserve using PCE as its preferred measure of price increases, the data could up pressure on them to roll back their easy money policies.
Spending was much lower than the 1.1 percent advance in June, with consumers increasing services spending by $102.6 billion but decreasing goods spending by $60.4 billion.