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U.S. private incomes rise by most as a consequence of fiscal incentives

U.S. personal incomes grew the most on monthly records from March through 1946. This was driven by a third round of pandemic relief controls, which also sparked a sharp surge in spending.

The 21.1% increase in incomes followed a 7% decline in February, figures from the Department of Commerce showed on Friday. Purchases of goods and services rose 4.2% last month, the strongest since June.

The surge in personal spending and income offers the economy a solid move away from the second quarter after a robust pace of growth early in the year.

Economists predicted a 20.3% increase in income and a 4.1% increase in personal expenses, according to Bloomberg medians.

March data showed that transfer revenues, including stimulus checks and unemployment benefits, nearly doubled from the previous month to nearly $ 8.2 trillion. Wages rose slightly in March.

Inflation-adjusted personal spending rose 3.6% in March after falling 1.2% a month earlier. Spending on goods rose 7.3%, while spending on services rose 1.7%.

The personal savings rate rose from 13.9% in February to 27.6%. Disposable income, excluding taxes and adjusted for inflation, rose 23% in March.

A separate report released Thursday showed that gross domestic product rose 6.4% on an annualized basis in the first quarter, reflecting the second-fastest pace of personal consumption since the 1960s.

With spending soaring, more cash in people's bank accounts, and vaccinations to fuel reopening, economic growth will continue to accelerate in the coming months.

The agency's key consumer price measure, known as the Personal Consumption Spending Price Index, which the Federal Reserve officially uses for its target, rose 2.3% in March year over year. This is the biggest gain since 2018. The so-called PCE core price index, which excludes volatile food and energy costs, rose by 1.8% after a plus of 1.4% in February.

Inflation indicators are temporarily influenced by so-called "base effects". The year-over-year increase in price metrics seems big as they compare to the very weak inflationary pressures at the start of the pandemic.

Inflation has been a controversial issue among economists, lawmakers, and Wall Street, especially after the recent stimulus package and Biden's two infrastructure proposals, which would run to around $ 4 trillion.

Fed officials believe any price hike will prove temporary, but others point out that pent-up demand, rising material costs, and higher federal spending could result in persistent price pressures.

After the last meeting of the Federal Open Market Committee on Wednesday, Fed Chairman Jerome Powell stated that after 12 months inflation rates are expected to be "well above" 2% in the next few months, but the effects will "disappear" in the months after April and May.

"During this reopening period, we will likely see some upward pressure on prices," said Powell. “An episode of one-off price hikes as the economy reopens is not the same as – and is unlikely to result in persistently higher year-over-year inflation – inflation at levels inconsistent with our target of 2% inflation over time . "

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