Personal income leaps 10% in January thanks to stimulus, but inflation still in check

Key Points
  • Personal income rose 10% in January, versus the 9.5% Dow Jones estimate.
  • The increase was largely attributable to government stimulus checks and enhanced unemployment benefits.
  • Core PCE inflation was up 1.5% year over year, in line with estimates and still well below the Fed’s 2% target.
Personal income jumps 10% in January due to stimulus checks
Personal income jumps 10% in January due to stimulus checks

A fresh round of government stimulus checks sent personal income up to its biggest monthly gain since April 2020 though inflation remained tame, the Commerce Department reported Friday.

Personal income jumped 10% after a 0.6% increase in December. That was even higher than the 9.5% Dow Jones estimate.

The gain came from the issuance of $600 stimulus payments that Congress approved for millions of Americans, along with enhanced unemployment benefits. Consumers took those checks and spent them quickly, sending retail sales surging and pushing overall expenditures up 2.4% for the month, a touch below the estimate of 2.5%.

The slightly softer-than-expected spending data came amid a burst in the personal savings rate to 20.5%, or $3.93 trillion. That was the highest level since May 2020.

All that spending failed to gin up inflation pressures, however.

The personal consumption expenditures price index, which is the Federal Reserve's preferred inflation gauge, rose 0.3% for the month, slightly ahead of the 0.2% expectation but was up just 1.5% year over year, matching Dow Jones estimates. That number was the same both for the headline rate and the core, which excludes volatile food and energy prices.

In September, the Fed even adopted an official policy in which it would allow inflation to run hotter than 2% for a period before raising rates.

However, coronavirus pandemic-related pressures have contributed to a general disinflationary environment that has led policymakers to say they likely will be on hold for years.

Congress is poised to approve all or parts of a $1.9 trillion stimulus program from the White House that will provide another round of payments to consumers as well as extended jobless benefits, aid to states and localities, and funding for Covid-related programs.

Consumers "will be looking to spend that money as spring weather allows more outdoor activities and more people are vaccinated against the coronavirus," wrote Gus Faucher, chief economist at PNC. "High levels of saving will also support consumer spending growth over the next couple of years."