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Surging Inflation Eats Up Most of Stimulus Checks

Consumer spending, after adjusting for inflation, fell in June as shoppers were hit with the biggest increase in prices in nearly three decades.

The Commerce Department reported Monday that consumer spending dipped by 0.2 percent in June, after removing the effects of higher prices, the poorest showing since a similar drop in February.

The higher prices reflected a big surge in gasoline costs and helped to drive an inflation gauge tied to consumer spending up by 0.8 percent in June, the biggest increase since a 1 percent rise in February 1981.

The big rise in inflation ate up a part of the billions of dollars in stimulus payments delivered during the month. Personal incomes rose by a tiny 0.1 percent in June following a giant 1.8 percent increase in May.

Stocks opened lower in reaction to the report.

The performance of incomes were skewed by how the department accounts for the billions of dollars in stimulus payments that have been made over the past three months.

Those payments totaled $1.9 billion in April, when the program was just getting started, then $48.1 billion in May and $27.9 billion in June.

Those payouts made incomes and after-tax incomes soar in May compared to April but weaken in June since the level of June payments was lower than they had been in May.

Consumer spending before removing inflation rose by 0.6 percent in June after a big 0.8 percent increase in May. Much of that spending went to pay higher prices for gasoline and other items, however.

Removing inflation, spending edged up by a more modest 0.3 percent in May and fell by 0.2 percent in June.

The overall economy, as measured by the gross domestic product, grew at a 1.9 percent rate in the April-June quarter, more than double the 0.9 percent increase in the January-March quarter.

Economists believe the $168 billion stimulus program will continue to lift the economy in the current quarter.

They predict there will be a significant slowdown in the final three months of this year and early next year, though.

Some analysts believe GDP will shrink in those two quarters, giving the country back-to-back GDP declines, the traditional definition of a recession.

The spending and incomes report showed that prices shot up by 0.8 percent.

Excluding food and energy, the increase was 0.3 percent, up from a 0.2 percent rise in May and the biggest one-month gain since a similar 0.3 percent rise last September.

After-tax incomes fell by 1.9 percent in June following a huge 5.7 percent surge in May, both months heavily influenced by how the government accounted for the stimulus payments.

Excluding those payments, after-tax incomes would have rise by 0.3 percent in June after a 0.4 percent rise in May.

The savings rate, as a percent of after-tax incomes, dropped to 2.5 percent in June after having shot up to 4.9 percent in May.

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