Prices were up by 3.6 percent in April compared to a year ago, continuing a trend of rising inflation, although economic policymakers say the increases aren’t here to stay.
Data released by the Bureau of Economic Analysis on Friday showed that prices rose 0.6 percent in the past month. However, consumer spending fell 0.1 percent in April compared to March, after adjusting for inflation, as stimulus running through the economy began to slow down.
The latest inflation data is unlikely to rattle the Federal Reserve, which is charged with keeping prices stable and unemployment low. Fed leaders have argued for months that a rise in inflation will be temporary, and that prices will simmer down as the economy reemerges from the pandemic. Rather than rush to raise interest rates and slow down the recovery, the Fed is urging patience so that the labor market has time to recover.
In April Americans’ after-tax income slid 15.1 percent from the record level it hit in March, when hundreds of billions of dollars in stimulus payments goosed US bank accounts, after adjusting for inflation. In March, income had jumped an eye-popping 22.7 percent compared to February. So while after-tax income slipped in April, it has trended upward in the longer run, as stimulus checks and unemployment benefits continued to arrive in April but at lower levels.
Powered in part by this government-assisted income surge, consumer spending recovered completely from the COVID crisis in March, after adjusting for inflation. Consumers account for almost 70 percent of the US economy and their spending whims have long powered US economic growth.
But while consumers are finally shelling out just as much per month as they did before the recession, spending in April 2021 looks very different than it did just 14 months earlier, before the crisis. Spending on goods — everything from private planes to window panes — recovered within a month or two and has been in record territory ever since.
Spending on services, such as parking fees and surgeries, rose 0.6 percent in April from the previous month but remained 4.7 percent below its prepandemic level as fears of the virus remain widespread and some high-traffic brick-and-mortar firms struggle to regain their footing.