Americans will receive a snapshot of consumer buying power this week as new inflation data shows how the current market climate affects households. The inflation data, released Tuesday by the Department of Labor, is expected to reflect the highest interest rates in two decades, and a potential squeeze on consumer spending.
The data set includes the Consumer Price Index (CPI), which measures the average change in prices paid by consumers for goods and services, and the Personal Consumption Expenditures (PCE) index, which gauges the changes in prices of things people buy on a regular basis.
Analysts are expecting to see that inflation, at least at the consumer level, has accelerated modestly in recent months as the Federal Reserve has pushed interest rates higher. The Fed has been tightening its policies, raising the benchmark rate four times this year to a range of 2.25% to 2.50%.
Higher interest rates mean consumers may have less disposable income to spend, forcing them to cut back on certain items and weigh their money-management decisions more carefully. This could be reflected in the inflation data, showing a slower growth in household spending.
Inflation is also tied closely to wage growth. The data release is expected to show faster wage growth, suggesting that higher pay is helping to offset some of the effects of higher interest rates. The jobless rate is at a nearly two-decade low and businesses are hiring, so the data should indicate some steady underlying growth in consumer spending.
Overall, the data is expected to show that businesses remain resilient despite the significant increase in interest rates, indicating that the economy is still on the right track.
The data will also provide a good indication of how interest rate increases are pushing the cost of living up, giving the Federal Reserve important information to consider when making future rate decisions. The data release is expected to be closely watched, both in the US and abroad, as a barometer of the American economy.
