Personal Income and Consumption Climb, but Inflation Remains Tepid
February 25, 2021
Another round of stimulus checks meant Americans had more money to spend in January. Personal income jumped 10% in January, following a 0.6% increase in January. The big gain was largely due to the $600 checks issued as part of Congress’s latest aid package. Still, the increase beat the 9.5% climb that Dow Jones had expected.
Consumers were quick to spend their checks, driving retail sales up. Overall expenditures were up 2.4% for the month, slightly below the 2.5% economists had expected. Some Americans also opted to deposit their checks instead, driving the personal savings rate to 20.5%, the highest level since last May.
Despite all this extra money circulating, inflation has remained tepid. The personal consumption expenditures index, which is the Fed’s preferred inflation gauge, was up 0.3% for the year, slightly above the 0.2% forecast. That leaves the index up just 1.5% year-over-year, well below the Fed’s 2% target. Still, many economists worry that we are seeing signs of mounting inflationary pressure among commodity prices and in the bond market, and that these pressures may soon be felt by consumers.