US consumer spending pauses in May but inflation rises

The US Federal Reserve’s main inflation gauge – core PCE price index – rose to 3.4% in May from 3.1% in April, posting its biggest annual increase in almost 30 years, with inflation being boosted by increased demand for services and supply constraints.

On the other side, consumer spending which accounts for over two thirds of the US economic activity, was on hold last month after rising by 0.9% in April and missing forecast for 0.5% increase.
A pause in personal spending was caused by supply shortages and shift towards services, as a number of Americans have been fully vaccinated and started to travel, dine out and return to other activities that were restricted during the pandemic.

Slowdown in real retail sales was partially offset by recovering services demand, with expectations that overall consumer spending growth will strengthen in coming months as economic recovery accelerates and the situation in services sector continues to normalize.

Economists expect inflation to remain elevated in the near term, due to supply limitations and worker shortages that boost wage growth, while the larger outlook is also positive, as strong demand is expected to persist on continuing reopening of the economy.

The US Federal Reserve chair Jerome Powell said that inflation has notably increased in recent months, but the US lawmakers are unlikely to react proactively and start increasing interest rates because of inflation fears, as they see the current increased inflation as transitory.