Washington: US consumer spending increased by the most in more than 9-1/2 years in March as households stepped up purchases of motor vehicles, but price pressures remained muted, with a key inflation measure posting its smallest annual gain in 14 months.
The surge in consumer spending reported by the Commerce Department sets a stronger base for growth in consumption heading into the second quarter after it slowed sharply in the first three months of the year.
It further allayed concerns about the economy’s health, which had been brought to the fore by a temporary inversion of the US Treasury yield curve last month. Tame inflation, however, supported the Federal Reserve’s recent decision to suspend further interest rate increases this year.
Fed officials are scheduled to meet on Tuesday and Wednesday to assess the economy and deliberate on the future course of monetary policy. The US central bank in March dropped forecasts for any interest rate increases this year, halting a three-year policy tightening campaign. The Fed raised borrowing costs four times in 2018.
“The economy is in a sweet spot for now with not enough inflation to cause the Fed to raise rates, and with inflation not low enough to worry Fed officials that economic demand is weakening, which could require rate cuts,” said Chris Rupkey, Chief Economist at MUFG in New York.
Consumer spending, which accounts for more than two-thirds of US economic activity, surged 0.9 per cent. That was the biggest rise since August 2009 and was also driven by increased healthcare expenditures. Spending rose 0.1 per cent in Feb.
Data for January was revised up to show consumer spending rising 0.3 per cent instead of the previously reported 0.1 per cent gain. The release of the February spending data was delayed by a five-week partial shutdown of the federal government that ended on Jan. 25. Economists polled by Reuters had forecast consumer spending jumping 0.7 per cent in March.
— Reuters
