Inflation remained well over targets in February but consumers just kept spending, the latest signal that the economy is not quick to slow down, despite actions from the Federal Reserve. 

The Fed’s preferred gauge of inflation in February was up 0.3 percent over the month before. It was up 2.8 percent over a year previous, according to a Friday release from the Bureau of Economic Analysis. Personal spending by Americans rose 0.8 percent from January. 

The numbers paint a picture of a nation where inflation is still higher than economists and consumers would like, but income and wages are rising enough to cover most of the gap. Monthly inflation in February was lower than the month before and lower than what was measured in the Consumer Price Index, but economists expect the Fed to still wait on interest rate cuts, at least until June. 

“Even though it’s slower than January, slower than what we saw in the core CPI, it’s still too elevated to give the Fed reserve confidence or the green light so they could start preparing to cut interest rates,” said Kathy Bostjancic, chief economist at Nationwide Mutual Insurance. 

It’s usually unlikely to see a spending surge in February and the recent jump is likely in part due to the hefty increase in income that Americans saw in January. Also the weather was mild across the Midwest, which may have spurred spending in the region, said John Herrmann, president at Herrmann Forecasting. 

High interest rates may have Americans shifting dollars from prospective mortgages into other areas, like travel. International travel helped drive a 0.6 increase in real spending on services.

“People just shifted gears,” Herrmann said. “People said, ‘Home prices might be too high and the mortgage rate is too high, but I’m not going to put my life on hold.’”

The spending will contribute to GDP growth, but comes at a cost. The personal savings rate of Americans was just 3.6 percent in February, significantly lower than economists would like to see. Americans are continuing to overspend on their savings. 

“The consumer is, in our opinion, really overextended,” Bostjancic said. “They’re spending more than what they’re receiving in income.”

At Home Style Caterers in Schenectady, N.Y., owner Anthony Adonnino said customers are staying loyal despite price increases. But inflation has affected every part of the business. 

“It’s not just related to the cost of goods. You have insurance, taxes, everything. Advertising costs are up, printing costs are up,” Adonnino said. “There isn’t anything that has remained static.”

High inflation has been a salient issue politically, and if it continues unabated could have negative implications for President Biden’s 2024 election prospects. Nearly one-quarter of voters say inflation is their most important issue in the 2024 elections, according to a recent poll from the Economist and YouGov. That is double the share who said the next top issue for voters, immigration, was their most important concern. 

Adonnino said that although he’s seen price increases moderate slightly, he believes the current administration is not doing enough to curb the rising tide.

“When you spend, spend, spend, you create inflation,” he said. 

Hermann said he expects annual inflation to not dip much more in the coming months and to inch up again in the fall. Such a trajectory would be bad news for the president, and may leave the Fed with fewer options than expected.

“What slows this down?” Herrmann said. “It’s not breaking. It’s not cracking.”

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