In the US, personal consumption expenditures measure, in basic terms, how much consumers spend on different economic segments. They are key components of the PCE price index, a measure of inflation closely watched by the Federal Reserve.

Immediately after the outbreak of Covid-19 in early 2020, consumer spending crashed dramatically, falling by almost 10% in the second quarter of last year compared to the same period in 2019. While this measure recovered somewhat in the third and fourth quarters, expenditure as a whole is still down year-on-year.



Yet this fall masks a remarkable diversity in how much consumers spend on different sectors. It is well-documented that hospitality and service businesses have been hit particularly hard by the Covid-19 pandemic. But spending on some segments – such as furnishings and durable household equipment – has surged. The rise in working from home no doubt explains a significant amount of this.

These discrepancies have important implications for future readings of inflation and monetary policy. Should pent-up demand for certain sectors spill over once pandemic-induced measures, such as lockdowns, are eased, these parts of the economy will run into bottlenecks as they rebuild capacity. While they do, excess demand will manifest as inflation in these sectors and could shift PCE indicators as a whole. But it would be misleading to read these transitory and specific pressures as a sign of broader inflationary dynamics.