WASHINGTON — US consumer spending increased and inflation pushed higher in June, which could strengthen expectations that the Federal Reserve will curtail its bond purchases later this year.
The Commerce Department said on Friday consumer spending rose 0,5%, lifted by automobile purchases and higher gasoline prices. May’s increase was revised down to 0,2% from a previously reported 0,3%.
June’s increase in consumer spending, which accounts for more than two-thirds of US economic activity, was in line with economists’ expectations.
A price index for consumer spending rose 0,4%, the largest gain since February. It had edged up 0,1% in May. Over the past 12 months, inflation rose 1,3%, still below the Fed’s 2%target.
The index advanced 1,1% in the period through May. With prices picking up, consumer spending adjusted for inflation nudged up 0,1%. The so-called consumer spending, which goes into the calculation of gross domestic product, had increased by the same margin in May.
The consumer spending numbers were included in the second-quarter gross domestic product report on Wednesday, which showed the economy grew at a 1,7%annual pace after expanding at a 1,1% rate in the first three months of the year.
Spending has been held back by an increase in taxes at the start of the year, but is expected to accelerate in the second half of the year, supported by a steady jobs market and a recovery in housing.
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The economy added 162 000 jobs in July, compared to 188 000 in the previous month, the Labor Department said on Friday.
Analysts polled by Reuters had forecast jobs growth of 184 000 for July. The rise in inflation in June should provide some comfort to Fed officials who on Wednesday nodded to the potential dangers of inflation running too low, and bring them close to reducing the central bank’s $85 billion per month in bond purchases.
Still, inflation remains benign. The price index for consumer spending, excluding food and energy, rose 0,2% in June. It was the largest increase since January and followed a 0,1% gain in May. Core prices were up 1,2% from a year ago, rising by the same margin for a third consecutive month.
A firming labour market is helping to prop up income, which in June gained 0,3% after rising 0,4% in May.
But government salaries fell, reflecting furloughs at agencies as part of Washington’s belt-tightening.
With spending outpacing income growth, the saving rate — the percentage of disposable income households are socking away — fell to 4,4% from 4,6%.