Consumer spending rises 0.3% in July

WASHINGTON» Growth in U.S. consumer spending slowed in July to a modest increase of 0.3% as infections from the delta variant spread, while inflation over the past 12 months hit its fastest pace in three decades.

Last month’s spending was not even a third of the 1.1% rise in June, the Commerce Department reported Friday.

It was the clearest signal yet that the surge in the delta variant of the coronavirus has had an impact on consumer spending, the driving force in the economy.

Consumer prices over the past 12 months have risen 4.2%, the biggest 12-month gain since a 4.5% increase for the 12 months ending in January 1991. This price index tied to consumer spending is the inflation gauge preferred by the Federal Reserve.

The 4.2% increase over the past year is well above the Fed’s annual inflation target of 2% but so far Fed officials view the jump in inflation as transitory and have not changed their easy-money policies in the belief that rising infections could become a threat to future growth.

In a speech Friday, Fed Chairman Jerome Powell continued to express optimism that the jump in inflation is temporary and will not require the Fed to raise interest rates to tamp down inflation.

“The spike in inflation is so far largely the product of a relatively narrow group of goods and services that have been directly affected by the pandemic and the reopening of the economy,” Powell said, effects that “should wash out over time.”

Powell did say the Fed could begin trimming its $120 billion in monthly bond purchases this year, a maneuver used to lower long-term interest rates, as long as the labor market continues to improve. Rising inflation and infections are taking a toll on consumer confidence.

The University of Michigan’s consumer sentiment index, released Friday, fell sharply in August to a reading of 70.3, down from 81.2 in July. But economists said they are looking for a rebound in confidence once the inflation spike and COVID-19 cases begin to recede.

Incomes, which provide the fuel for future spending, rose a solid 1.1% in July, reflecting in part the strong job gains that month.

The government reported Thursday that the overall economy as measured by the gross domestic product, rose by a solid 6.6% in the April-june quarter. While economists have trimmed their forecasts for growth in the current quarter based on the virus resurgence, analysts still believe if COVID-19 cases recede in the final four months of 2021, the country will experience its strongest growth since the mid1980s this year.