WASHINGTON (Reuters] – U.S. consumer expenditure increased faster than expected in January. However, price pressures continued mounting with the annual inflation rate reaching levels not seen since four decades ago.

Commerce Department reported Friday that consumer spending, accounting for nearly two thirds of U.S. economy, increased 2.1% last month, after falling 0.8% from December.

Reuters polled economic experts and found that they had predicted consumer spending to rebound at 1.5%.

Massive savings are supporting consumer spending, as well as strong wage growth in a tightening labor marketplace. This is compensating for a decrease in the amount of government money available to households.

Expectations for an abrupt slowdown in economic activity in the first quarter could be dampened by the rebound in consumer spending.

After January’s strong retail sales, many economists have raised their estimates of gross domestic product growth for the quarter. Annualized growth is around 2% for this quarter. In the fourth quarter, GDP grew 7.0%.

The bulk of retail sales go to the consumer goods segment. Due to a rise in COVID-19 infection, the economy ended the fourth quarter on a slower note. A Reuters analysis of US data shows that the United States reports an average of 80.131 COVID-19 new infections per day. That’s a sharp drop from mid-January when it was more than 700,000. This has led to an increase in mobility.

However, high inflation is hampering economic growth as wage gains are being cut. The Federal Reserve has set a 2% inflation target. However, the rate of inflation is still well above that. This could be exacerbated by Russia’s incursion into Ukraine. Prices rose to $100 per barrel on Thursday, the highest level since 2014. Prices dropped to $98.7 per barrel Friday.

Federal Reserve officials are expected to raise interest rates by March in an effort to curb inflation. Economists anticipate seven increases this year.

Moody’s Analytics (NYSE 🙂 Analytics states that $100 per barrel oil would cut 0.1 percentage point off GDP growth in quarter two and 0.5 percent in quarter three.

After rising 0.5% by December, January’s personal consumption expenditures prices index rose 0.6% to 0.6%.

The PCE price index rose 6.1% in the twelve months to January. This was the highest increase since 1982. It followed an 8.8% annual growth in December.

After rising 0.5% last December, the PCE index saw a 0.5% increase.

1.1% increase year-on-year for the core PCE price index in January. It was the highest rise since 1983. Through December, the core PCE index rose 4.9%.