US consumer spending falls unexpectedly in August

[WASHINGTON] US consumer spending unexpectedly fell for the first time in seven months in August but inflation showed signs of accelerating, mixed signals that could keep the Federal Reserve cautious about raising interest rates.

The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of US economic activity, fell 0.1 per cent last month after accounting for inflation.

Analysts polled by Reuters had expected a 0.1 per cent gain.

Robust consumer spending partially offset weak business investment and falling business inventories in the second quarter when the economy expanded at a lackluster 1.4 per cent annual rate.

Overall economic growth could still accelerate in the current quarter even with August's slight decline in consumer spending, although households appear to spending with less gusto than in prior months.

Consumer spending has been driven by a tightening labour market, which Fed Chair Janet Yellen said this week might be lifting incomes. Personal income rose 0.2 per cent in August, in line with expectations.

Consumer prices also rose about as much expected, with the price index outside food and energy increasing 0.2 per cent from the prior month. That left inflation outside food and energy at 1.7 per cent in the 12 months through August, up a tenth of a per centage point from the prior month and closer to the Fed's 2 per cent inflation target.

Ms Yellen said last week she expected the US central bank would raise interest rates once this year to keep the economy from eventually overheating.

REUTERS