US economic growth slowed in Q1, inflation rates rose

US economy grew in the first quarter at its slowest pace in nearly two years as the trade deficit widened due to a jump in imports to meet still strong consumer spending, but accelerating inflation raised expectations that the Federal Reserve (US central bank) would not cut interest rates before September.

According to Reuters, the slowdown in growth announced by the Commerce Department in a glimpse of first-quarter GDP on Thursday also reflects the slowing pace of accumulation of inventories by companies and a decline in government spending. Domestic demand remained strong in the last quarter.

The Commerce Department’s Bureau of Economic Analysis said that gross domestic product grew by 1.6% year-on-year in the fourth quarter. Growth was largely supported by consumer spending.

Economists polled by Reuters expected the gross domestic product to rise by 2.4 percent, with estimates ranging from 1 percent to 3.1 percent. The economy grew at a rate of 3.4% in the fourth quarter.

Inflation increased, as the personal consumption expenditures price index, which excludes energy and food, increased by 3.7% after rising by 2% in the fourth quarter.

The so-called core personal consumption expenditures price index is one of the inflation measures that the US Central Bank tracks to achieve its target of 2%, and the central bank has kept the interest rate in the range of 5.25-5.50% since July. The benchmark overnight interest rate has been raised by 525 basis points since March 2022.

Consumer spending grew at a still strong rate of 2.5%, slowing from the 3.3% growth rate recorded in the fourth quarter.