August 16, 2022

Pay growth and prices picked up, keeping the Fed on track for rate increases.

Yet that transition has happened only slowly. Spending on services rose in June, but so did spending on goods, even adjusted for inflation. Spending on cars and car parts rose 2.5 percent in June after falling in May.

“We had this narrative going into the year that consumption would shift from goods to services, but consumers continued to spend” on goods, said Blerina Uruci, an economist at T. Rowe Price.

Still, incomes rose more slowly than prices in June, and consumers compensated by saving at the lowest rate since 2009 — a trend that won’t be sustainable in the long run. And there are other reasons to think that both price growth and spending may soon crack.

Airfares have been declining this month, economists said, which should take some pressure off inflation in July, and the broader economy shows some signs of cooling. Used cars, which have been in short supply for more than a year and a big factor in inflation, are finally returning to some car sales lots as demand for pre-owned vehicles wanes.

“In our bifurcated economy, used-vehicle buyers are more likely to be more negatively impacted by higher prices for energy, food and rent,” Jonathan Smoke, chief economist at Cox Automotive, wrote in a research note this week.

Large retailers including Walmart have noted that consumers are buying fewer goods as they pay more for food and find their budgets strained.

Article source: https://www.nytimes.com/2022/07/29/business/economy/fed-inflation-wage-growth.html

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