The personal consumption expenditures price index, which measures the change in the prices of goods and services purchased by consumers, rose 6.8% in June compared to the same period last year, according to data released Friday by the Bureau of Economic Analysis.
It surpasses the previous 40-year high of 6.6% in March this year and falls just shy of the 6.9% year-over-year rate set in January 1982, when inflation slowed from one of the highest levels in United States history.
Before June, the PCE index held steady at 6.3% for both May and April. However, June gas prices saw record highs, and the PCE price index reflected those gains: Food prices rose 11.2% and energy prices grew 43.5%, according to the BEA. Month-on-month, the PCE price index rose 1% from May.
Stripping out volatile food and energy prices, core PCE — the inflation index closely watched by the Federal Reserve — rose 4.8% from a year ago, up slightly from May but down from a high of 5.3% in February.
Revenues take a hit
Friday’s BEA data showed that Americans’ income grew by 0.6% month over month, disposable income grew by 0.7% and spending increased by 1.1%. But when inflation is taken into account, consumption rose by just 0.1% and disposable income fell by 0.3% month-on-month.
Consumer spending is slowing, largely due to inflation, said Scott Brave, chief consumer economist at Morning Consult.
“Inflation-adjusted personal disposable income fell again in June, and it’s really been steadily declining for well over a year now,” Brave told CNN Business in an interview. “And that just puts pressure, it puts a burden on the consumer to respond, and I think we’re reaching the point now where growth is certainly slowing down.”
Lower-income households were hit first, and they were hit the hardest, he said.
“More recently, we started to see that filter into middle-income households as well,” he said. “They are also starting to pull back more on spending and need to adjust the allocation of spending.”
Consumers still have a gloomy outlook
Understandably, consumers are not feeling good about the state of the economy right now, especially the high inflation.
“Robust consumption had been supported by strong labor markets and expectations of rising incomes, but with persistently high prices eroding those incomes, consumers are adjusting their spending habits to cope,” Joanne Hsu, director of consumer research, said in a statement. “With renewed concerns that rising unemployment may be on the horizon, this pullback in consumer spending is likely to be reinforced if their concerns over the future path of the labor market continue to grow.”
Consumers in the July survey expect median inflation to land at 5.2% over the next year and around 2.9% over the next five years.