Wednesday, 01 February 2023 20:48

US consumer spending fell in December, inflation slowed

WASHINGTON D.C.: In the latest indication that its interest rate hikes are slowing the US economy, the Federal Reserve’s main inflation indicator eased further in December, while consumer spending fell.

According to a report from the Commerce Department released this week, prices rose 5 percent last month from one year earlier, down from a 5.5 percent year-over-year increase in November, being the third consecutive monthly decrease.

From November to December, consumer spending fell 0.2 percent and was revised lower to a 0.1 percent decline from October to November.

The Federal Reserve Bank will likely welcome the slowing in consumer spending, as they aim to cool the economy by increasing lending costs.

Meanwhile, inflation rose 0.1 percent from November to December for a second consecutive month.

These latest figures are separate from the better-known inflation index, the consumer price index (CPI), that was released earlier this month and also showed a steady slow down.

"The latest data offer the first tangible signs that the economy’s main engine is slowing," said Oren Klachkin, lead US economist at Oxford Economics, as quoted by the Associated Press.

The Fed has aimed to slow spending, growth and rising prices, which have negatively affected the US for some two years, but it is in an increasingly delicate position. Chair Jerome Powell stressed that the US central bank plans to maintain its increases and raising its key rate, potentially until the end of the year, but this might not be possible if a recession happens.

Last week, the Federal Reserve’s beige book, a gathering of anecdotal reports from businesses around the country, said, "Many retailers noted increased difficulty in passing through cost increases, suggesting greater price sensitivity on the part of consumers."