USA: Drop in consumer spending, further slowdown in inflation

WASHINGTON, Jan 27 (Reuters) – U.S. consumer spending fell in December, putting the economy on a weaker growth path through 2023, while inflation continued to ease, which could allow the Federal Reserve to slow the pace of its interest rate hikes next week.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.2% last month, the Commerce Department said on Friday.

November’s data was revised down to 0.1% decline from a previously reported 0.1% rise.

Economists polled by Reuters had forecast consumer spending falling 0.1% in December.

The data was included in the preliminary fourth-quarter gross domestic product (GDP) report released on Thursday, which showed consumer spending maintained a solid pace of growth, helping the economy grow 2.9% at an annualized rate over the period.

However, rising borrowing costs have reduced demand for goods, which tend to be purchased on credit. Furthermore, some households, especially low-income ones, have depleted the savings accumulated during the COVID-19 pandemic.

On the inflation side, the Personal Consumption Expenditure (PCE) price index edged up 0.1% last month, similar to November. In the 12 months to December, the PCE price index rose 5.0% after rising 5.5% in November.

Excluding the volatile components of food and energy, the PCE price index rose 0.3% after rising 0.2% in November. This basic PCE price index, called “core PCE”, rose 4.4% year on year in December, after rising 4.7% in November. (Report Lucia Mutikani; French version Augustin Turpin, edited by Blandine Hénault)

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