Inflation Nation: First Quarter Consumer Spending and Prices Hiked

U.S. prices jumped higher as consumers spent more on goods, housing, and imports in the first quarter compared with earlier estimates, data from the Commerce Department showed Thursday.

Personal consumption expenditure jumped 11.3 percent in the January through March period compared with the prior quarter, an unexpected increase from the preliminary estimate of 10.7 percent.

The upward revision to consumer spending indicates the economy was on a stronger footing as the year began than was thought, bringing into doubt the need for the Biden administration’s costly American Rescue stimulus plan and possibly hurting the chances of the other big spending plans the White House has been pushing.

Price increases were also revised up, indicating stronger inflationary pressures than seen earlier. The personal consumption price index rose 3.7 percent, up from the earlier estimate of 3.5 percent and a big acceleration from the 1.5 percent increase recorded in the fourth quarter of 2020.

Excluding volatile food and energy prices, so-called core PCE inflation increased 2.5 percent, up from the earlier estimate of 2.3 percent and 1.3 percent in the fourth quarter.
Consumption spending on goods soared 11.3 percent, compared with the earlier estimate of 10.7 percent. Durable goods spending jumped 25.6 percent and nondurables 48.6 percent, compared with the advance estimates of 23.6 and 41.4.

Spending on services expanded 4.6 percent, as estimated earlier. Services spending grew more slowly in the first quarter than it is thought to be growing now because many face-to-face businesses remain fully or partially closed.

Imports were revised higher, with spending on imported goods rising 6.5 percent versus 5.5 estimated earlier. Imported services rose 7.6 percent versus the earlier 6.5 percent estimate. This is another indicator that consumer demand was stronger than thought in the first quarter. But imports subtract from Gross Domestic Product because spending by U.S. consumers does not become income for U.S. workers. In short, some of the stimulus payments went into spending on goods and services made abroad.