The US gross domestic product was revised sharply higher, according to a Thursday report, and consumer spending was shown to have accelerated in May even as prices rose at the fastest pace in more than three years.
GDP was upwardly revised to a 2.1 per cent annualised rate last quarter, the Commerce Department's Bureau of Economic Analysis said. Growth was previously reported to have advanced at a 1.6 per cent pace, according to Reuters.
The personal consumption expenditures price index rose 4.1 per cent from a year earlier, the most since April 2023, Bureau of Economic Analysis data showed. Excluding food and energy, prices were up 3.4 per cent from a year earlier.
Inflation-adjusted consumer spending rose 0.3 per cent last month after stalling in April.
A closely watched metric of services inflation that excludes energy and housing advanced 0.5 per cent, the most since January. Financial services prices rose by the most in almost a year, while transportation services and health care also posted strong increases.
When measured from the income side, the economy grew at a 1.2 per cent rate in the January-March quarter. Gross domestic income was previously estimated to have increased at a 0.9 per cent rate. It grew at a 1.6 per cent pace in the fourth quarter.
The numbers are likely to keep pressure on the Federal Reserve to raise interest rates this year. Despite the recent peace negotiations between the US and Iran that have sent oil prices tumbling, economists expect the costs of an array of products to continue rising as the initial energy shock works its way through supply chains.
Looking ahead, the recent pullback in petrol prices could offer consumers some reprieve, though prices at the pump are still almost $1 a gallon higher on average than before the war started.
Higher-than-usual tax refunds have helped bolster consumers in recent months, while a reaccelerating labour market and rising stock prices are also supporting spending. Even so, workers across sectors have seen pay gains fail to keep up with inflation, which has many saving less or turning to credit cards to maintain consumption habits.
There was good news on that front in Thursday’s figures: personal income, a metric which is not adjusted for inflation, rose 0.7 per cent, while wages and salaries advanced 0.4 per cent.
Beyond the war’s direct impact on energy prices, categories in both goods and services saw firm price increases in the May report.
Overall economic activity is mostly being driven by artificial intelligence-related spending, with business investment in equipment increasing at a 15.8 per cent rate. Prices of computer software and accessories rose a record 14.5 per cent from a year earlier, in part reflecting strong demand from the data centre buildout.
-With agencies
