Consumption surged in Q1 2023 and inflation edged higher

As inflation firmed and consumer spending increased in January, it is likely that the Federal Reserve will continue to raise interest rates in the coming months to cool price pressures as long as inflation remains stable.

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There was a seasonally adjusted 1.8% rise in household spending in January from the prior month, the Commerce Department announced on Friday, compared to a revised 0.1% decrease in December. As a result of the spending figure, the U.S. economy has continued to show signs of viability despite recent economic challenges.

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There were 5.4% increases in personal consumption expenditure prices in January compared to a year earlier, after an increase of 5.3% in December, the FOMC's preferred measure of inflation. Compared to a year ago, the core PCE-price index, which excludes food and energy prices, grew 4.7% in January from a year earlier, as well as ticking upwards from December. The central bank aims for 2% annual inflation.

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In January, the PCE-price index rose by 0.6% compared to the previous month. There was also a 0.6% rise in core prices in January from the previous month, compared to a 0.4% rise in December. There are many economists who believe that the core measure of inflation is a better indicator of future inflation rates.

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"Despite all our efforts, we are still very far from being able to declare victory over inflation," said Derek Holt, head of capital markets economics at Scotiabank.

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According to Friday's report, household income also rose 0.6% from the previous month as a result of a rise in prices. From a rate of 4.5% in December to a rate of 4.7% in January, there was a significant increase in personal savings.

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Based on adjusted data for rising prices, spending rose by 1.1% from December to January when adjusted for rising prices.

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It has also been reported that Americans spent the most money at retailers and restaurants in January for the first time in nearly two years, the unemployment rate reached a 53-year low, service-sector activity grew, and initial jobless claims, which are an indicator of layoffs, were trending at historically low levels as well.

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Eugenio Aleman, a chief economist at Raymond James, says all indicators point to an improving economy.