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U.S. consumer spending beats forecasts in March; inflation soars -Breaking

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© Reuters. FILE PHOTO – Shoppers look around in a grocery store in North St. Louis Missouri on April 4, 2020. REUTERS/Lawrence Bryant/File photo

WASHINGTON, (Reuters) – U.S. consumers spent more in March than anticipated due to strong services demand. However, monthly inflation rose by the highest level since 2005.

According to the Commerce Department, consumer spending, which is responsible for over two-thirds U.S. economy activity, increased 1.1% in February. The February data was updated to reflect an increase in outlays of 0.6% rather than 0.2%.

Reuters polled economists and found that 0.7% of them expected consumer spending to rise. Higher prices were partly responsible for the increase in consumer spending. Consumer spending continues to grow strongly in the second quarter. This is a sign of the economy’s strength.

This data was part of the first quarter gross domestic product (ADVANCE) report, released on Thursday. It showed that the economy contracted at 1.4% annually due to a larger trade deficit. Due to higher imports and slower inventory growth than the strong fourth quarter, this was indicative of a slowing pace.

The combination of business investment and consumer spending helped to increase domestic demand.

Personal consumption expenditures prices (PCE) saw a 1.9% increase in March. It was the highest gain since 2005. In February it rose 0.5%. The PCE price index rose 6.6% in the twelve months to March. This was the biggest annual increase since 1982. It followed an increase of 6.3% in February.

However, March was likely to have marked the highest PCE price index. As the large gains made last year drop off the calculation, economists anticipate that the PCE price index will start to slow down in the months ahead.

Additionally, supply chain pressure is being eased by the shifting of spending away from goods to services.

After a similar increase in February, the PCE index gained 0.3%. Core PCE price Index grew by 5.2% in March year-on-year. In the twelve months to February, core PCE price index increased 5.3%.

All measures of annual inflation have exceeded the Federal Reserve’s target of 2%. The U.S. central banks is likely to raise interest rates 50 basis points next week. In March, the Fed increased its policy interest rate 25 basis points and will soon begin trimming assets.

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