Consumer spending fell in May as food, fuel prices stoked inflation

Consumer spending dropped in May as food and fuel prices rose sharply, according to data released Thursday by the Commerce Department.

Personal consumption expenditures (PCE), a measure of consumer spending, rose 0.2 percent in May but fell 0.4 percent when adjusted for inflation. While personal incomes rose 0.5 percent in May, they fell 0.1 percent after adjusting for inflation.

The decline in consumer spending came as prices rose 0.6 percent overall in May, according to the Commerce Department’s PCE price index, a gauge of inflation. Without food and fuel prices, the PCE index rose 0.3 percent for the third consecutive month in May.

The PCE index rose 6.3 percent in the 12 months ending in May, in line with April’s annual inflation rate, and 4.7 percent without energy prices. The annual increase in the PCE without food and energy fell to 4.7 percent in May, declining for the third consecutive month.

While prices for other goods and services appeared to plateau in May, the steep increase in food and energy prices are driven largely by the war in Ukraine took a serious toll on consumer spending. Higher interest rates set by the Federal Reserve, which are meant to fight inflation, may have also weighed on consumer spending in May.

Inflation has remained close to 40-year highs for several months and has risen steadily for more than a year, far outdating the February outbreak of the war in Ukraine. But severe shortages of food, fertilizer, and other crucial commodities from Russia and Ukraine, along with the sharp increase in demand for oil, have added more pressure to inflation.

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