US consumer spending falls; tariff-related boost to inflation awaited

• U.S. consumer spending unexpectedly fell in May as the boost from the pre-emptive buying of goods like motor vehicles ahead of the Trump administration's tariffs faded, while monthly inflation maintained a moderate pace of increase.
• The Commerce Department's report on Friday likely will have no impact on near-term monetary policy as Federal Reserve Chair Jerome Powell told lawmakers this week that the U.S. central bank needed more time to gauge the impact of the import duties on prices before considering a resumption of interest rate cuts.
• Business surveys have suggested tariffs could start driving up prices this summer, a sentiment shared by Powell and most economists. President Donald Trump's sweeping tariffs, which have led businesses and households to front-run imports and goods purchases to avoid higher prices from duties, have muddled the economic picture, and the spending report offers no clarity.
• Consumer spending, which accounts for more than two-thirds of economic activity, dropped 0.1% last month after an unrevised 0.2% gain in April, the Commerce Department's Bureau of Economic Analysis said. That was the second decline in consumer spending this year. Economists polled by Reuters had forecast consumer spending would edge up 0.1%.
• Economists warned it could take time for the tariff-related distortions to wash out of the economic data. Despite the weakness, an imminent collapse in spending is unlikely as wages increased by a solid 0.4% last month.
• Most economists argue price increases have remained moderate because businesses are still selling inventory accumulated before the tariffs went into effect. They expect inflation will start picking up, beginning with consumer price data for June. Still, some of them believe softening demand could make it harder for businesses to pass on tariffs to consumers.

(Source: Reuters)