by Matthew Rusling
WASHINGTON, April 25 (Xinhua) -- The growth of U.S. gross domestic product (GDP) slowed significantly in the first quarter amid stubborn inflation that shows no sign of abating.
The economy slowed more than analysts expected in the year's first quarter with decelerations in consumer spending, exports, and government spending.
GDP, the measure of all goods and services produced in the country, grew 1.6 percent in the first quarter from the same period a year ago, according to data released by the Commerce Department on Thursday.
That figure marks a sharp drop from 3.4 percent in the fourth quarter of last year, and amounts to the lowest GDP in two years.
INFLATION REMAINS HIGH
While growth slows down, inflation has increased, with personal consumption expenditures (PCE) price index growing 3.4 percent in the first quarter, according to data released on Thursday.
That marks a significant uptick from the 1.8 percent rise in last year's final quarter.
The United States is experiencing the worst inflation in 40 years, which has put a strain on the wallets of lower-earning individuals and those living on a fixed income.
While the government had early on tagged inflation as "transitory," a growing chorus of economists, observers and ordinary Americans believe that high inflation will remain for at least the next couple of years.
Inflation and the high interest rates that come along with it have made it more difficult for people to own homes, save and invest.
Desmond Lachman, a senior fellow at the American Enterprise Institute and a former official at the International Monetary Fund (IMF), told Xinhua that Thursday's "disappointing" GDP numbers raise questions as to whether the Fed has achieved a soft landing, in which growth remains strong and inflation comes back down to the Fed's 2-percent target.
Instead, the numbers suggest "that maybe we will have stagflation with weak economic growth yet inflation remaining above the Fed's target," Lachman said.
Stagflation is the double whammy of a stagnant economy with high inflation, which can be devastating to individuals, families and businesses.
The Fed has made an effort to bring inflation down to its 2 percent mandate by raising interest rates since March 2022. Markets, businesses and possible homeowners want to see interest rates come down. But Thursday's inflation numbers make this scenario unlikely in the short term.
The higher-than-expected inflation numbers "make it very unlikely that the Fed will cut interest rates at either of its next two policy meetings," Lachman said.
"Despite the fact that headline growth came in almost a full percentage point below expectations, we see little in today's report that will warrant much legitimate justification for a softer monetary policy stance," Tim Quinlan and Shannon Grein, economists at Wells Fargo Securities, said in an analysis.
Some economists believe data on wages slated to come out next week will provide more insight into whether the Fed will cut rates this year.
Dean Baker, a senior economist at the Center for Economic and Policy Research, told Xinhua: "The wage data next week will tell us a lot about interest rate cuts."
IMPACT ON ELECTIONS
The worst inflation in decades has put a dent in people's incomes now for about two years, particularly impacting the young, low-income earners and the elderly.
The issue is particularly pressing in the lead-up to November's presidential election, as high prices have become one of voters' major concerns.
Brookings Institution Senior Fellow Darrell West told Xinhua that inflation is a problem for President Joe Biden.
"While it has come down considerably, it remains a challenge for consumers," West said.
"This issue will be one of the top three to four issues in the campaign and gives (opposition candidate and former President Donald Trump) an opportunity to criticize Biden," West said.
"Ninety percent of Americans have already made up their minds on Biden versus Trump so inflation will not be decisive for most voters. But it could affect the last 10 percent who are undecided," he said. ■
