U.S. inflation remains high, consumer spending dips

U.S. consumer spending was unchanged in March, while underlying inflation pressures remained strong, which could see the Federal Reserve raising interest rates again next month.

The unchanged reading in consumer spending last month, reported by the Commerce Department on Friday, followed a downwardly revised 0.1% gain in February.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have increased 0.2% in February.

The data was included in the advance gross domestic product report for the first quarter published on Thursday, which showed consumer spending surging at a 3.7% annualised rate that period after rising at a 1.0% pace in the October-December quarter.

The overall economy grew at a 1.1% pace as the acceleration in consumer spending was offset by businesses liquidating inventories in anticipation of weaker demand later this year. The economy expanded at a 2.6% rate in the fourth quarter.

Last month’s flat reading in consumer spending set consumption on a lower growth path in the second quarter. It

likely reflected Americans becoming more averse to higher prices as well as the expiration of a temporary boost to the Supplemental Nutrition Assistance Program (SNAP) benefits authorised by the U.S. Congress to cushion low-income people and families against the hardships of the COVID-19 pandemic.

SNAP is commonly known as food stamps. Researchers from the Commerce Department’s Census Bureau on Thursday estimated the end of the extra benefits had resulted in roughly 32 million people getting smaller monthly SNAP payments. They estimated that a household of four with a net monthly income of $2,000 was now getting $600 less in food stamps each month.