Which economic indicator can signal the onset of inflation?

The choice of consumer spending as an economic indicator signaling the onset of inflation is correct because consumer spending plays a pivotal role in driving demand within the economy. When consumer spending increases, it typically indicates that households are confident in their financial situation and are willing to purchase more goods and services. This heightened demand can lead to upward pressure on prices, particularly if supply does not expand equally to meet this demand. Consequently, when consumer spending rises significantly, it can signal that inflation may soon follow due to the increased demand relative to supply.

Additionally, changes in interest rates often respond to inflationary pressures rather than signal them directly, while GDP growth can indicate a growing economy without necessarily implying inflation, and unemployment adjustments can reflect labor market conditions but do not directly point toward future inflation. Thus, the dynamics of consumer behavior and spending are crucial in signaling potential inflationary trends in the economy.