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The initial estimate of first-quarter U.S. GDP growth was revised higher on Thursday with the upgrade attributed to a range of factors, although corporate profitability was reported to have fallen in what may have been the result of high inflation as well as efforts to contain it.

Economic growth had initially been estimated to be running at an annualised 1.1% before being restated as 1.3% on Thursday when the Bureau of Economic Analysis cited consumer spending, exports, and government spending as among the most prominent drivers of growth.

Growth in those areas was counterbalanced or partially offset by increased spending on imports, which are a subtraction in the calculation of GDP, as well as decreases in private inventory investment and residential fixed investment. 

"Real gross domestic income (GDI) decreased 2.3 percent in the first quarter, compared with a decrease of 3.3 percent (revised) in the fourth quarter," the Bureau says in reference to the corrosive effect of inflation.

Inflation has declined in recent quarters but this may have been at the expense of profits, which fell by $151.1 billion during the quarter after more than doubling the $60.5 billion decline seen in the fourth quarter.

The intensified decline in corporate profits could be the result of discounting having helped to reduce inflation.

"The price index for gross domestic purchases increased 3.8 percent in the first quarter, the same as previously estimated," the Bureau says in reference to the so-called GDP deflator, which quantifies the effect of inflation on real terms economic output. 

"The personal consumption expenditures (PCE) price index increased 4.2 percent, the same as previously estimated. Excluding food and energy prices, the PCE price index increased 5.0 percent, an upward revision of 0.1 percentage point," the Bureau also said. 

The above reference to the personal consumption expenditures (PCE) price index is important because that particular measure of inflation is the one targeted by the Federal Reserve, which has raised its interest rate by 500 basis points or 5% since March 2022 in order to bring down inflation. 

Thursday's announcement confirms the PCE inflation rate crept higher once last quarter's declines in food and energy costs are set to one side. 

This Friday will see the Bureau of Economic Analysis announce its estimate of PCE inflation for April, which would be one of numerous data points likely to help members of the Federal Open Market Committee decide the next interest rate decision in June.

Minutes of the Fed's May monetary policy decision highlighted on Wednesday that rate-setters at the bank had sought to communicate a desire for optionality in relation to future interest rate decisions owing to uncertainty about the economic outlook

Interest rate futures suggest the Fed Funds rate range is likely to remain unchanged at 5% to 5.25% next month.

The full announcement and related data can be accessed here.