Spending flat in May as inflation rises sharply

WASHINGTON — Consumer spending was flat in May with incomes dropping for a second month as the impact of the government’s pandemic stimulus payments waned. Inflation, however, posted a sizable gain with prices excluding food and energy jumping by the largest amount in nearly three decades.

The flat reading for consumer spending in May represented a marked slowdown following gains of 0.9% in April and a 5% surge in March, the Commerce Department reported Friday. The spending surge in March had been fueled by distribution of payments of up to $1,400 per individual from a $1.9 trillion stimulus bill, the Commerce Department reported Friday.

With those payments winding down, incomes fell by 2% in May after a drop of 13.1% in April. Wages and salaries, the key component of income, were up 0.8% in May, reflecting rising employment levels.

Inflation tied to a gauge of consumer spending that is closely watched by the Federal Reserve increased 0.4% in May and is up 3.9% over the past 12 months. That was the largest 12-month increase since 2008 and well above the Fed’s 2% target for annual price increases.

Core inflation, which excludes food and energy costs, rose 0.5% in May and is up 3.4% over the past 12 months, the biggest jump since 1991. These sharp price gains have raised worries that runaway inflation could become a threat, something not seen in this country since the oil shocks of the 1970s.

Federal Reserve Chairman Jerome Powell, however, told Congress this week that he still believes the current spike in inflation is transitory and being caused primarily by momentary problems in reopening the economy such as supply-chain bottlenecks.