On The Money — Higher food, gas prices cut into consumer spending

·5 min read

Americans are spending more money on the whole, but they got less with it in May as inflation kept rising. We’ll also look at a potential revival of some of President Biden’s economic agenda and a brutal month for the stock market.

But first, catch up on Biden’s Group of Seven and NATO meetings here.

Welcome to On The Money, your nightly guide to everything affecting your bills, bank account and bottom line. For The Hill, we’re Sylvan Lane, Aris Folley and Karl Evers-Hillstrom. Subscribe here.

Consumer spending falls in May

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 takeaway: While prices for other goods and services appeared to plateau on the whole in May, the steep increase in food and energy prices 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.

Sylvan breaks it down here.

MINI BBB?

Senate Democrats plan to submit a revised proposal to lower prescription drug prices for a key procedural review in the coming days as they press forward with preparations for a vote on President Biden’s economic package.

Lawmakers have made some revisions to a deal to lower drug prices and plan to submit it to the Senate parliamentarian in the coming days for a review of whether it can pass muster with the chamber’s complicated rules for avoiding a Republican filibuster, a source familiar said.

  • Senate Majority Leader Charles Schumer (D-N.Y.) has told senators that if a broader deal can be reached, the package could get a vote “as early as late July,” the source familiar said.

  • That plan would allow Medicare to negotiate lower prices for a limited subset of older drugs, prevent drug companies from raising prices faster than inflation, and cap out of pocket drug costs for seniors on Medicare at $2,000 per year.

  • Importantly, though, there is still no deal between Schumer and Sen. Joe Manchin (D-W.Va.) on the other major pieces of the package: tax and energy policy.

The Hill’s Peter Sullivan has more here.

STOCKS CLOSE OUT BRUTAL JUNE

The stock market closed out the final day of June with losses, capping off a tumultuous month for investors and the S&P 500 index’s worst first half since 1970.

  • The Dow Jones Industrial Average closed with a loss of 0.8 percent Thursday. The index is down 7.2 percent on the month and 15.3 percent since the start of 2022. 

  • The tech-heavy Nasdaq is down 29.5 percent on the year, while the S&P dipped 21 percent.

While stocks were expected to come back to earth in 2022, Wall Street has taken relentless and escalating losses as high inflation, the war in Ukraine and the Federal Reserve’s efforts to mitigate both boost concerns about a recession.

Sylvan has more here.

BIDEN WON’T ASK SAUDIS TO INCREASE PRODUCTION

President Biden on Thursday said he won’t ask Saudi Crown Prince Mohammed bin Salman to increase oil production during his visit to the Middle East next month.

“No, I’m not going to ask them. I’m going to ask— all the Gulf States are meeting. I’ve indicated to them that I thought they should be increasing oil production generically, not to the Saudis particularly. And I think, I hope, we see them in their own interest concluding that makes sense to do,” Biden said at a press conference in Spain.

Experts have said that it’s not guaranteed that lower gasoline prices would come out of Biden convincing the Kingdom to stabilize global oil markets. Saudi Arabia is the world’s second-largest oil producer and unofficial head of the Organization for Petroleum Exporting Countries.

Alex Gangitano has more here.

Good to Know

The Supreme Court on Thursday curbed the EPA’s ability to regulate climate change, setting limits on how the agency can deal with power plants.

In a 6-3 decision, the majority ruled that Congress did not authorize the EPA to induce a shift to cleaner energy sources using the approach that an Obama-era regulation sought to.

Here’s what else we have our eye on:

That’s it for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. We’ll see you tomorrow.

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