Real personal spending rose 0.2% in July, a positive indicator for economic growth in the third quarter. However, consumers need to see a higher growth rate in personal incomes for the real economy to grow. Personal income also grew in July, but was only up 4.6% from a year ago, not quite keeping up with the pace of inflation as the Personal Consumption Expenditure (PCE) deflator was up 6.3% from a year ago.
The July savings rate was 5%, unchanged from June. This continues to buffer consumers from ongoing inflation pressures. Checkable deposits for both households and nonprofit organizations are over $4 trillion as of the first quarter of 2022. However, the longer inflation erodes wages and earnings, consumers must tap into savings or credit to support recent buying habits.
For the first time in a while, yearly inflation rates eased for durable goods, nondurable goods, and services though food prices continue to accelerate. For some demographics, the quickening pace of food inflation has been tough on their monthly budgets.
Monetary policy decisions take time to impact the real economy. Inflation rates are cooling and supply and demand imbalances are improving. Fed Chairman Jerome Powell and his colleagues continue to highlight the pressure inflation adds to the overall economy. Recent comments are clearly suggesting that, right now, fighting inflation is more important than supporting growth. As the economic numbers for August start to trickle in over the next several weeks, we’ll see if the Fed’s medicine of raising rates continues to help slow the rising cost of prices.
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