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Consumer Spending Increases Despite Record-Breaking Inflation Rates

US consumer spending increased beyond expectations in January 2022, even as inflation reaches its highest rates in decades.

Consumer spending increasing

According to data from the Bureau of Economic Analysis, consumer spending exceeded expectations during January 2022 in spite of a four-decade high in inflation rates. According to the data, personal consumption increased by 2.1% – an equivalent of $337.2 billion; this was significantly higher than the growth predicted by economists which was 1%. These figures follow December where spending had fallen for the first time in 10 months.

Ongoing increases in inflation rates

Inflation continues to increase globally with a 6.1% year-over-year increase reported in January – a four-decade high. These increasing inflation rates extended to daily expenditure such as food and energy. Inflation for food prices increased by 6.7% but energy prices showed the most staggering increase, rising 25.9%.

Is personal income increasing or decreasing?

During the pandemic, the average household income decreased; however, this is an effect that seems to be recovering as the economy starts to recover. According to data from the Bureau of Economic Analysis, personal income rose by 0,1% month-on-month in January 2022, representing $9 billion. Although this was a deceleration from the growth of December (0.3%), it is still a positive sign.

Consumer spending is increasing

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It has been widely reported that consumer spending is increasing in 2022, particularly for recreational goods, motor vehicles and components, and other expendable items. The spending on goods was generally higher than services, probably partially due to ongoing government-imposed restrictions.

Additionally, households have continued to pay for housing, rent and utilities – all of which have experienced a sharp increase in price recently. Consumer spending has been through many peaks and troughs in recent years, slowed down substantially following the impact of the Coronavirus pandemic. However, consumer spending, particularly credit and debit card spending, seems to be returning to pre-pandemic levels.

What is going to happen to inflation rates?

“Inflation has been increasing at a constant level in recent months,” explains Ben Sweiry of fintech startup, Dime Alley.

“with consumer prices reaching a 7.6% increase on an annual basis in January 2022. With geopolitical tensions at an all-time high following Russia’s invasion of Ukraine, it is predicted that interest rates may not be increased by the Federal Reserve as aggressively as initially anticipated.”

“Instead,” he continued, “it is predicted that there may only be a quarter-point interest rate increase next month; however, it is still possible that the Fed could announce a 50 basis-point hike.”

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