Stimulus Checks Boost Consumer Spending, but Will Higher Inflation Follow?
Although stimulus checks were intended as a financial lifeline for eligible Americans struggling during the COVID-19 pandemic, not all of the money has gone toward paying rent, mortgages and bills. Consumer spending has also gotten a lift, according to a new report from the Commerce Department.
The impact all this spending has on inflation is up for debate, with some warning that government relief programs will lead to more inflation, while the Biden Administration downplays the threat.
The Commerce Department last week said consumer spending in the United States rose 4.2% in March after falling 1% in February, Reuters reported on Friday. Those numbers were in line with most economists’ expectations. Consumer spending, which includes everything from food and clothing to appliances and electronics, accounts for more than two-thirds of U.S. economic activity.
The spending data was part of Thursday’s first-quarter gross domestic product report. That report showed that U.S. GDP climbed at a 6.4% annualized rate during the first quarter of 2021 after increasing 4.3% the previous quarter. First-quarter consumer spending rose 10.7%.
Those numbers have undoubtedly gotten a boost from government relief programs, which have already delivered up to $3,200 in direct payments to eligible American adults, CBS News reported last week. Most middle- and low-income Americans got one-time $1,400 stimulus checks in March as part of that month’s COVID-19 relief bill.
Not everyone is spending the money, however. The nation’s savings rate shot up to 27.6% in March from 13.9% in February according to Reuters. Meanwhile, wages are also on the rise.
The combination of higher spending and rising wages has raised concerns about higher inflation in coming months. The core personal consumption expenditures price index — which excludes volatile food and energy spending — climbed 0.4% in March after rising 0.1% in February, Reuters reported. During the year ending in March, the core PCE price index rose 1.8%, which was the biggest increase since February 2020.
Some economists fear that President Joe Biden’s $1.8 trillion American Families Plan will create even more inflation pressure. But as Bloomberg reported on Sunday, Treasury Secretary Janet Yellen downplayed that threat during an appearance on NBC’s “Meet the Press.” Yellen said she doesn’t believe inflation will be an issue because the boost in demand will be a moderate one spread out evenly over a period of eight to 10 years.
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