The Commerce Department reported Friday that a key inflation measure showed that prices rose at their fastest level in nearly 39 years, but it didn't deter consumers from spending aggressively.
The core personal consumption expenditures price index, the Federal Reserve's primary inflation gauge, rose 5.2% from a year ago. It was the highest level since 1983.
The PCE was up 6.1% including food and energy prices.
The core PCE rose in line with estimates, while the headline gain was up.
The report showed that consumer spending grew faster than expected, rising 2.1% on the month against the 1.6% estimate. Spending increased in December.
Even though personal income was flat, it was better than the expectation for a drop. After-tax, or real disposable, income fell as the child tax credit expired and wage gains and Social Security checks were adjusted.
The personal savings rate was 6.4% in December.
The report showed that orders for long- lasting goods jumped 1.6% in January, compared to the outlook for a 0.8% gain.
Since the 1970s and early 1980s, inflation has been front and center for markets, as price gains have persisted at the strongest levels since. The Fed had to institute a series of interest rate increases that caused the economy to go into recession.
In the current case, policymakers have indicated that hikes are coming, though they are hoping to tighten in a more deliberate way. Most central bank officials expect to start the increases in March, and markets expect hikes to come at most of the ensuing six meetings this year.
The data shows that energy and food costs went up in January. Services inflation rose 0.4%.
Wages and salaries will increase 9.3% in 2021, after increasing just 1.3% in the previous year. The rate of increase for those costs in January was slightly slower than in the previous month.
Demand for goods is high because of the money.
New orders rose 0.7% without transportation. The ex-defense orders were up.
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