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U.S. consumer spending rises sharply, but inflation climbs almost as fast

By Jeffry Bartash

Incomes are falling after inflation is factored in

The numbers: Consumer spending rose a sharp 1.1% in March, but the increase barely outpaced another surge in inflation as Americans confront the biggest price increases in 40 years.

Economists polled by The Wall Street Journal had forecast a 0.7% rise.

Although households spent more, they are also paying higher prices for gas, groceries and other staples

A key measure of inflation included in the report rose by 0.9% last month, government figures showed A big jump in gasoline prices was a chief reason why.

Even after factoring in inflation, consumer spending rose a smaller but still solid 0.2% last month. But households appeared to dig into their savings to meet their needs.

The savings rate fell to 6.2% from 6.8% and is now below pre-pandemic levels.

Americans may be drawing on their savings because incomes are no longer keeping up with inflation -- they increased by 0.5% in March.

Wages have also risen sharply over the past year, but not as fast as the cost of living.

Big picture: The U.S. economy has downshifted into a lower gear after a rapid burst of growth last year. Yet consumers and businesses are still spending and investing at fairly healthy levels -- even after taking high inflation into account.

The U.S. is likely to keep expanding at a steady clip, economists say, but rising interest rates and more turbulence overseas in Ukraine and China loom as ongoing threats. If inflation gets worse it could spell even more trouble.

The so-called PCE price index leaped 6.6% in the 12 months ended in March. And a better known measure of the cost of living, the consumer price index, has risen at an even faster 8.5% pace

Key details: Americans spent more in March on travel, hotels, restaurants and other services. That's viewed as a good sign for the economy because consumers tend to cut back when they aren't as confident.

They also spent more on gasoline because of higher prices, but that's not a good thing for households. It gobbles up a bigger share of their budgets and limits what they can spend on discretionary goods and services.

Gas prices leveled off in April, however, to offer Americans some relief.

Looking ahead: "Consumer spending has been supported by strong job and wage growth," said senior economist Sal Guatieri of BMO Capital Markets. "Don't count the American consumer out yet."

Market reaction: The Dow Jones Industrial Average and S&P 500 were set to open lower in Friday trades.

-Jeffry Bartash

 

(END) Dow Jones Newswires

04-29-22 0932ET

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