First-quarter US GDP revised down as inflation climbs
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The news: US consumer spending barely grew in April as war-driven inflation hit a three-year high, government data showed, adding to evidence that the Middle East conflict is hollowing out household finances.
The Bureau of Economic Analysis reported that inflation-adjusted spending rose just 0.1%, while the personal consumption expenditures price index jumped 3.8% year-on-year, the highest since May 2023.
Core PCE, which strips out food and energy, rose 3.3% year-on-year and 0.2% month-on-month, slightly below the 0.3% forecast.
Real disposable income fell 0.5%, its third straight monthly decline, and the saving rate dropped to 2.6%, the lowest since 2022, according to Bloomberg.
Separately, the BEA revised first-quarter GDP growth down to 1.6% from an initial 2% estimate, reflecting lower inventory investment and consumer spending.
Treasuries rallied after the data, with the 10-year yield settling at 4.48%. Swap markets imply around an 80% chance the Fed will deliver a quarter-point rate hike by year-end, according to Bloomberg.
What they said: “What the numbers point to today is simply that we have a stagflation problem,” Peter Cardillo, chief market economist at Spartan Capital Securities, told Reuters.
“And that’s a big problem for the Fed. We have growth that’s not that strong and rising inflation. And that suggests that a Fed hike is getting closer to reality as opposed to a rate cut.”
