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Consumer spending and prices rise moderately in June

Washington

US CONSUMER spending and prices rose moderately in June, pointing to slower economic growth and benign inflation that could see the US Federal Reserve cutting interest rates on Wednesday for the first time in a decade. The Commerce Department said on Tuesday that consumer spending, which accounts for over two-thirds of US economic activity, gained 0.3 per cent as an increase in services and outlays on other goods offset a decline in purchases of motor vehicles.

Data for May was revised up to show consumer spending rising 0.5 per cent instead of the previously reported 0.4 per cent advance. Economists polled by Reuters had forecast consumer spending climbing 0.3 per cent last month. The data was included in last Friday's second-quarter gross domestic product report, which showed consumer spending increased at a 4.3 per cent annualised rate, accelerating from a tepid 1.1 per cent pace in the January-March period.

Robust consumer spending blunted some of the hit to GDP from weak exports, business investment and a slowdown in inventory accumulation. The economy grew at a 2.1 per cent rate last quarter, pulling back from the first quarter's brisk 3.1 per cent pace.

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Consumer prices as measured by the personal consumption expenditures (PCE) price index edged up 0.1 per cent in June as food and energy prices fell. The PCE price index gained 0.1 per cent in May. In the 12 months through June, the PCE price index rose 1.4 per cent after a similar increase in May.

Excluding the volatile food and energy components, the PCE price index rose 0.2 per cent last month, increasing by the same margin for a third straight month. That lifted the annual increase in the so-called core PCE price index to 1.6 per cent from 1.5 per cent in May. The core PCE index is the Fed's preferred inflation measure and has undershot the US central bank's 2 per cent target this year. Fed officials were due to start a two-day policy meeting on Tuesday against the backdrop of slowing economic growth. The economy, which is slowing as the stimulus from last year's US$1.5 trillion tax-cut package fades, is facing headwinds from trade tensions and weak global growth.

When adjusted for inflation, consumer spending gained 0.2 per cent in June. This so-called real consumer spending rose 0.3 per cent in May. Last month's small gain in core consumer spending likely sets up consumption for a step-down in the third quarter after the robust growth recorded in the April-June period.

Last month, spending on goods rose 0.3 per cent. Spending on services also rose 0.3 per cent.

Consumer spending in June was supported by a 0.4 per cent rise in personal income, which followed a similar increase in May. Wages increased 0.5 per cent. Savings shot up to US$1.34 trillion from US$1.31 trillion in May. REUTERS