Rising gasoline prices and interest payments impact U.S. consumer spending

News Room
By News Room 3 Min Read

The growing burden of rising gasoline prices and higher interest payments are impacting American consumer spending, with the share of income allocated to these costs reaching levels not seen in years. This comes as the Federal Reserve continues its aggressive tightening policy in an attempt to control inflation.

Consumer spending on gasoline and interest combined accounted for 4.7% of US disposable income last month, the highest since August 2014, according to figures from the Bureau of Economic Analysis published on Friday. Interest payments alone, at 2.5% of disposable income, were the highest since September 2008.

Increases in the share of income going to either interest or gas often precede recessions, and this recent climb presents a dual challenge for the US economy as the Fed aims to return inflation to its 2% target without triggering a recession.

Overall consumer spending rose just 0.1% in August after adjusting for inflation, marking the weakest reading since March. While this was slightly better than forecasters had anticipated, it was still a significant drop from July’s reading.

“Rising gasoline prices meant that real disposable incomes fell for a second straight month, and with consumers likely to increase precautionary saving as the labor market slows, we anticipate a sharper slowdown in consumption growth ahead,” Michael Pearce, the lead US economist at Oxford Economics, said on Friday.

Higher gasoline prices boosted August consumer spending and kept inflation elevated, while underlying price pressures cooled amid the Federal Reserve’s efforts to slow the economy. Americans increased their spending by a seasonally adjusted 0.4% in August from a month earlier, according to the Commerce Department. This is healthy growth but represents a slowdown from a 0.9% gain in July.

The Federal Reserve’s preferred inflation gauge, the personal-consumption expenditures price index, rose 0.4% last month, largely reflecting energy costs. Core prices, which exclude food and energy, rose a milder 0.1% in August. From a year earlier, overall prices advanced 3.5% in August versus 3.4% in July. Core prices rose 3.9% over the year, easing from an annual increase of 4.3% in July.

Underlying inflation has cooled as the Fed aggressively raised interest rates in the past 18 months. Fed officials say they need to see this trend continue before determining whether to raise rates again.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Read the full article here

Share This Article
Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *