However, much of that increase reflected rising energy costs. Core inflation, by this measure was up 1.4% for the 12 months ending in February, down from a 1.5% gain in January. The inflation readings remain below the Fed’s 2% target for annual price increases and Fed Chairman Jerome Powell repeated this week that any rise in inflation this year should be temporary.
In addition to the boost from another round of stimulus checks, economists believe spending will be supported this year by the buildup in household savings over the past year as consumers stayed away from restaurants and cancelled vacations. The government reported that personal savings totaled a sizable $2.41 trillion with the saving rate, saving as a percentage of after-tax income, at 13.6%.
The overall economy, as measured by the gross domestic product, grew at an annual rate of 4.3% in the fourth quarter, capping a year when GDP plunged by 3.5%, the biggest annual setback in more than seven decades.
Mark Zandi, chief economist at Moody’s Analytics, said he expects GDP fueled by strong consumer spending, will grow at an annual 5.1% this quarter followed by quarterly growth rates continuing to rise for the rest of the year, giving the economy 6% growth for all of 2021, the strongest performance in 37 years.
“It will be a boom year,” Zandi said. “The economy will be helped by an end to the pandemic which will make people feel comfortable about going out, along with massive support from the federal government and pent-up demand from consumers.”