Get 40% Off
🚀 Our AI Picked 6 Stocks that Jumped +25% in Q1. Which Picks Will Soar in Q2?Unlock full list

Rising gasoline prices and interest payments impact U.S. consumer spending

EditorRachael Rajan
Published 09/30/2023, 12:50 AM
Updated 09/30/2023, 12:50 AM

The growing burden of rising gasoline prices and higher interest payments are impacting American consumer spending, with the share of income allocated to these costs reaching levels not seen in years. This comes as the Federal Reserve continues its aggressive tightening policy in an attempt to control inflation.

Consumer spending on gasoline and interest combined accounted for 4.7% of US disposable income last month, the highest since August 2014, according to figures from the Bureau of Economic Analysis published on Friday. Interest payments alone, at 2.5% of disposable income, were the highest since September 2008.

Increases in the share of income going to either interest or gas often precede recessions, and this recent climb presents a dual challenge for the US economy as the Fed aims to return inflation to its 2% target without triggering a recession.

Overall consumer spending rose just 0.1% in August after adjusting for inflation, marking the weakest reading since March. While this was slightly better than forecasters had anticipated, it was still a significant drop from July’s reading.

"Rising gasoline prices meant that real disposable incomes fell for a second straight month, and with consumers likely to increase precautionary saving as the labor market slows, we anticipate a sharper slowdown in consumption growth ahead," Michael Pearce, the lead US economist at Oxford Economics, said on Friday.

Higher gasoline prices boosted August consumer spending and kept inflation elevated, while underlying price pressures cooled amid the Federal Reserve's efforts to slow the economy. Americans increased their spending by a seasonally adjusted 0.4% in August from a month earlier, according to the Commerce Department. This is healthy growth but represents a slowdown from a 0.9% gain in July.

The Federal Reserve's preferred inflation gauge, the personal-consumption expenditures price index, rose 0.4% last month, largely reflecting energy costs. Core prices, which exclude food and energy, rose a milder 0.1% in August. From a year earlier, overall prices advanced 3.5% in August versus 3.4% in July. Core prices rose 3.9% over the year, easing from an annual increase of 4.3% in July.

Underlying inflation has cooled as the Fed aggressively raised interest rates in the past 18 months. Fed officials say they need to see this trend continue before determining whether to raise rates again.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.