A Stern Glance

Personal income tumbled unexpectedly in July and inflation-adjusted spending shrank at sharpest rate in four years as the lift from government stimulus checks waned, a Commerce Department report on Friday showed.

A big jump in prices pushed inflation to a 17-year high, the Commerce Department said, eroding what little spending power consumers had. The report suggested the economy’s stimulus-related momentum was fading after a surprisingly strong second quarter.

Personal income fell 0.7 percent in July, the sharpest decline since a 2.3 percent plunge in August 2005 after Hurricane Katrina, the government said. Analysts were expecting income to hold steady.

Consumer spending, which accounts for about two-thirds of national economic activity, rose 0.2 percent, as expected, the slimmest gain since February. However, inflation-adjusted spending fell 0.4 percent, the biggest drop since June 2004 and the second consecutive monthly decline.

The government issued $13.7 billion rebate checks last month as part of a plan to deliver an extra $107 billion to American households this year to cushion the blow from a deep housing slump and tight credit. However, the amount of checks issued in July dropped by half from June’s level.

Prices paid by consumers rose by a sharp 0.6 percent last month, pushing the year-on-year rise in the personal consumption expenditures price index up to 4.5 percent, the highest since February 1991.

Much of the increase was due to fast rising food and energy prices. But even with those costs stripped out, prices gained 0.3 percent from June and were up 2.4 percent over the past year, the biggest year-over-year gain since February 2007.

While fast-rising food and energy prices have taken a big toll on U.S. consumers and businesses, a big drop in the price of oil since a record high reached last month could soon offer a wave of relief.