A key economic indicator closely watched by the Federal Reserve shows inflation continues to increase at a record clip and real dollar wages are falling further behind those upticks even as higher prices start to show some signs of slowing consumer spending.

Meanwhile, the $2 trillion in excess savings bolstered by federal pandemic stimulus distributions — money that has helped keep spending rates high — is likely to be mostly gone by the time fall rolls in.

What’s happening: According to a Thursday report from the U.S. Commerce Department, the personal consumption expenditure price index jumped 6.3% in May over the same time last year, reflecting the continued upward trajectory of the cost of goods and services.

While overall consumer spending inched up by 0.2% in May, when adjusted for inflation the figure falls to a 0.4% decrease from the previous month. Disposable personal income for U.S. workers also bumped up in May, according to the Commerce Department, but the 0.5% increase, after adjusting for inflation, registers instead as a 0.1% decrease for the month and a 3.3% drop over the same time in 2021.

“It should really come as no surprise that U.S. consumers are paring their spending due to the high costs of, well, almost everything,″ Jennifer Lee, senior economist at BMO Capital Markets, wrote in a research note.

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An economy under threat: Chronically high inflation has become a leading threat to the economy and a political hazard for President Joe Biden and Democrats as midterm elections near.

Seventy-nine percent of U.S. adults describe the economy as poor, according to a new survey from The Associated Press-NORC Center for Public Affairs Research. Inflation is eclipsing the healthy 3.6% unemployment rate as a focal point for Americans who are struggling, in particular, with high gasoline and food prices.

In response, the Fed has embarked on a series of aggressive interest rate hikes that are intended to slow growth by making borrowing more expensive but that also risk causing a recession. Two weeks ago, the Fed raised its key rate by three-quarters of a point — its largest hike in nearly three decades — and signaled more large rate increases to come.

The Fed tends to monitor Thursday’s inflation gauge, called the personal consumption expenditures price index, even more closely than it does the government’s better-known consumer price index, according to The Associated Press.

While the components of the two indexes differ — CPI tends to weigh gasoline and housing costs more heavily and to show higher inflation — the two gauges tell the same basic story: Inflation is running dangerously hot.

Stimulus-juiced savings are dwindling. Consumers have financed their purchases by saving less, according to the Wall Street Journal. In May, the saving rate rose modestly to 5.4%, after the rate fell to its lowest level in more than a decade in April. They are spending down the roughly $2 trillion in excess savings that accumulated during the height of the pandemic, when spending fell and government stimulus padded bank accounts.

“Consumers are spending above their normal levels, not because their incomes are well above normal levels, but because of their savings,” Tavis McCourt, institutional equity strategist for Raymond James, told the Journal. “My guess is by Labor Day most of this excess savings will be done.”

Contributing: Associated Press