February Inflation

Spending by United States consumers rose in February resulting in an eighth consecutive month of spending increases in the country. After looking closely at the numbers though it is apparent that things are not as good as they sound. Many Americans are reaching into their savings to cover higher costs of goods especially when it comes to energy and food prices. This past January spending rose 0.3 and in February that number increases to 0.7 percent. To go along with that inflation also increased, the notable point here is that it increased at the fastest pace it has since June of 2009. After inflation numbers were added into the equation we notice that spending was really only up 0.3 percent for the month of February. Economist Paul Dales was quoted as saying “The data provide yet more evidence that higher prices are denting economic growth.” The prices of goods in this country continue to rise and that is forcing many Americans to tap into their savings to cover the increased costs. During the final three months of last year consumer spending was increasing at its fastest rate in four years, but due to the continuing increased costs of energy and food many consumers will have to divert their excess spending to cover the increases in these areas. The cause of the inflation increase last month is due primarily to the increased food and energy cost that faced consumers last month. According to the Commerce Department, personal consumption expenditures price index (PCE) increased to 0.4 percent. This is the most rapid that the PCE has moved since June 2009 when it was 0.3 percent. If the PCE figure is recalculated for February and energy and food are removed from the equation the rate was only an increase of 0.2 percent. The difference in these figures can really help us see how much the increase in the cost of these products are affecting consumers. The Federal Reserve is ready to jump in and help combat continued inflation if things start to get out of control according to Chairman Ben Bernanke. On average Americans only had a 0.3 percent increase in their incomes in February compared to the 1.2 percent increase in January. Many economists had expected that number to grow but it just did not work out that way for most workers. Between that and the increase in the price of goods many people are struggling even more than they were before causing many to tap into what savings they have to combat the continuing increase in prices. There are not many positives that can be found when growth of consumption is greater than the increase in savings.

Tyler Lackey

http://www.foxbusiness.com/markets/2011/03/28/consumer-spending-rises-07/