US: The spending effect and inflation

According to personal income and expenditure data published today; In January, income increased by 10%, disposable income by 11.4% and personal expenses by 2.4%.

According to personal income and expenditure data published today; In January, income increased by 10%, disposable income by 11.4% and personal expenses by 2.4%. The rate of increase in the core PCE price index is 0.3% on a monthly basis and 1.5% on an annual basis. Income growth in January was high due to an increase in government benefits to individuals as payments were made from federal COVID-19 pandemic response programs. In terms of inflation, the issue of how much of this will return to spending is important. The Biden financial package will be voted on today and is of high importance for the increase in disposable income.

 

The increase in PCE in January is due to the increase in spending on both goods and services. The factor that increased the money cycle in January is certainly not Fed monetary expansion, but direct individual financial assistance. In other words, without the intermediate aid package, we would not see such an increase. In this case, we can say that the only benefit of the Fed's keeping interest rates low in the Covid-19 crisis is for those who have normally high access to credit. Unemployment benefits will improve the situation of individuals. The savings rate is at the level of 20.5%. Indiviuals who constantly lost their income turned to saving a little could be considered as normal. As the economic recovery and the employment market progress, the ratio of these savings to expenditure will increase.

 

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