- Personal Consumption Expenditures index showed a 5.8% year-on-year rise
- The number is closely watched by the Federal Reserve, which has already signaled it is looking to raise interest rates soon
- The Biden administration is under intense pressure to rein in rising prices as consumer demand combines with supply chain problems
A key indicator of inflation rose higher in December as brisk consumer spending collided with supply chain disruption, shortages and a tight labor market to push prices up, the Biden Administration announced Friday.
Consumer prices rose 5.8 percent in December compared with a year earlier, according to the Commerce Department’s Personal Consumption Expenditures index.
The measure is closely tracked by the Federal Reserve, which has signaled it is preparing to increase interest rates in order to rein in inflation.
At the same time, it reported that consumer spending fell 0.6% in December, with purchases of cars, electronics, and clothes declining.
Higher prices might have discouraged some shoppers, along with a wave of omicron cases that kept many Americans from traveling, eating out or visiting entertainment venues.
At the same time, incomes rose 0.3% last month, providing fuel for future spending.
Stubbornly high inflation has hammered household budgets, wiped out last year’s healthy wage gains and posed a severe political challenge to President Joe Biden and Democrats in Congress.
It also led the Federal Reserve to signal Wednesday that it plans to raise interest rates multiple times this year beginning in March to try to get accelerating prices under control.
With consumer spending likely remaining weak, economists project that growth will slow in the first three months of the year to a 1.5% annual rate or even less. That would be down drastically from a strong 6.9% rate in the final three months of 2021.
In another cautionary sign, a measure of consumer sentiment dropped this month to its lowest level in more than a decade, the University of Michigan reported Friday. Consumers are particularly worried about inflation eroding their incomes.
