Economy
Rising gasoline prices and interest payments impact U.S. consumer spending
The growing burden of rising gasoline prices and higher interest payments are impacting American consumer spending, with the share of income allocated to these costs reaching levels not seen in years. This comes as the Federal Reserve continues its aggressive tightening policy in an attempt to control inflation.
Consumer spending on gasoline and interest combined accounted for 4.7% of US disposable income last month, the highest since August 2014, according to figures from the Bureau of Economic Analysis published on Friday. Interest payments alone, at 2.5% of disposable income, were the highest since September 2008.
Increases in the share of income going to either interest or gas often precede recessions, and this recent climb presents a dual challenge for the US economy as the Fed aims to return inflation to its 2% target without triggering a recession.
Overall consumer spending rose just 0.1% in August after adjusting for inflation, marking the weakest reading since March. While this was slightly better than forecasters had anticipated, it was still a significant drop from July’s reading.
“Rising gasoline prices meant that real disposable incomes fell for a second straight month, and with consumers likely to increase precautionary saving as the labor market slows, we anticipate a sharper slowdown in consumption growth ahead,” Michael Pearce, the lead US economist at Oxford Economics, said on Friday.
Higher gasoline prices boosted August consumer spending and kept inflation elevated, while underlying price pressures cooled amid the Federal Reserve’s efforts to slow the economy. Americans increased their spending by a seasonally adjusted 0.4% in August from a month earlier, according to the Commerce Department. This is healthy growth but represents a slowdown from a 0.9% gain in July.
The Federal Reserve’s preferred inflation gauge, the personal-consumption expenditures price index, rose 0.4% last month, largely reflecting energy costs. Core prices, which exclude food and energy, rose a milder 0.1% in August. From a year earlier, overall prices advanced 3.5% in August versus 3.4% in July. Core prices rose 3.9% over the year, easing from an annual increase of 4.3% in July.
Underlying inflation has cooled as the Fed aggressively raised interest rates in the past 18 months. Fed officials say they need to see this trend continue before determining whether to raise rates again.
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© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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