US consumers spent more as the economy reopened in June, even as prices remained at a high level, data said

Washington (AFP) - A key US inflation index climbed four percent in June compared to the same month last year, according to government data released Friday, indicating prices remain high as the economy reopens.

But rather than accelerating as economists expected, the 12-month increase in the personal consumption expenditures (PCE) price index was the same as in May, the Commerce Department reported.

However, if the volatile food and energy components are excluded, the index ticked up slightly to 3.5 percent, according to the data.

Prices have been increasing in the world’s largest economy as it returns to normal following the downturn caused by Covid-19 last year, though economists debate whether inflation will be long-lasting or temporary.

The data also showed consumer spending climbing by a larger-than-expected one percent compared to May.

Income grew by 0.1 percent in the month, defying predictions it would decrease as the effects of government stimulus measures passed earlier in the year wear off.

“Spending and growth will likely be supported by a high level of income and savings in the near term, but we expect the pace to decelerate,” Rubeela Farooqi of High Frequency Economics said.

US consumers put away a record amount of money during the pandemic and the report shows them drawing down that stockpile, with the personal savings rate declining just under a percentage point to 9.4 percent with about $1.7 trillion in the bank.

Compared to the prior month, the PCE price index rose by a less-than-anticipated 0.5 percent.

The Federal Reserve’s preferred inflation gauge has been running above the central bank’s two-percent long-term goal, upping pressure on policymakers who have pledged to sustain easy-money policies to help the economy achieve full employment.

Farooqi like the Fed said inflation has been driven by temporary factors, and predicted, “price pressures should abate over coming months as supply chain dislocations ease and the reopening effect fades.”