Consumer spending and personal income rose sharply in March, according to data released Friday by the Commerce Department, driven in part by President Biden’s $1.9 trillion economic relief bill.
Personal income rose a staggering 21.1 percent in March after falling 7 percent in February, thanks in part to a third round of direct payments and other forms of aid authorized by Biden’s American Rescue Plan.
Personal consumption expenditures, which drive roughly 70 percent of U.S. economic growth, rose 4.2 percent in March after falling 1 percent in February.
The sharp rebound in consumer spending and incomes came as Biden signed another massive round of fiscal stimulus and economic aid on March 11, though not all of that money was disbursed before the end of the month. The U.S. also added a whopping 916,000 jobs in March, indicating that at least some recovery in spending and incomes was likely even without the relief bill.
As another round of stimulus, accelerating COVID-19 vaccinations and loosening restrictions propelled the economy, inflation rose 1.8 percent year over year in March as measured by the personal consumption expenditures (PCE) price index minus food and energy.
The PCE price index minus food and energy prices, which are often volatile, is the Federal Reserve’s preferred gauge of inflation. While the index jumped 0.4 percentage points on an annual basis in March, it remains 0.2 percentage points below the Fed’s annual target of 2 percent.
Critics of Biden and the Fed’s approach to the coronavirus recession have argued for months that the flood of fiscal and monetary stimulus into the recovering economy could spark an unsustainable rise in inflation.
Economists across the board largely agree that inflation will continue to rise throughout the summer as the collapse in demand from 2020 reverses, but many believe it will even out as the economy returns to a normal pace.
“We’re making our way through an unprecedented series of events, in which a synchronized global shutdown is now giving away to widespread reopening of economies in many places around the world,” Fed Chair Jerome Powell said Wednesday.
“We are likely to see some upward pressure on prices,” he continued, “but those pressures are likely to be temporary as they are associated with the reopening process.”
Powell added that annual measures of inflation for March and the following months would appear higher due to “base effects” — the comparison of a sharp decline to a sharp recovery from it — which add 1 percentage point to inflation readings.