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Consumer spending posts biggest gain in five months

Washington

US consumer spending increased more than expected in April, a further sign that economic growth was regaining momentum early in the second quarter, while inflation continued to rise steadily.

The Commerce Department said on Thursday that consumer spending - which accounts for more than two-thirds of US economic activity - jumped 0.6 per cent last month, the biggest gain in five months. Data for March was revised up to show spending rising 0.5 per cent instead of the previously reported 0.4 per cent increase.

Economists polled by Reuters had forecast consumer spending advancing 0.4 per cent. Spending was boosted by purchases of petrol and other energy products. Nondurable goods purchases increased 0.9 per cent. Outlays on services rose 0.5 per cent, lifted by demand for household utilities.

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Prices continued to gradually rise. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components increased 0.2 per cent for the third straight month.

That left the year-on-year increase in the so-called core PCE price index at 1.8 per cent. The core PCE index is the Federal Reserve's preferred inflation measure. The US central bank has a 2 per cent inflation target.

Economists expect that the annual core PCE price index will breach the Fed's target in the coming months. The Fed is expected to raise interest rates next month. It increased borrowing costs in March and has forecast at least two more rate hikes for this year.

The moderate inflation also helped support consumer spending last month. When adjusted for inflation, consumer spending rose 0.4 per cent in April after increasing 0.5 per cent in the prior month. That suggests an acceleration in consumer spending after it grew at a one per cent annualised rate in the first quarter, the slowest pace in nearly five years.

The solid consumer spending added to data on trade and industrial production that have left economists anticipating a pick-up in economic growth in the second quarter. Gross domestic product estimates for the April-June period are above a 3 per cent rate. The economy grew at a 2.2 per cent pace in the first quarter.

In April, personal income rose 0.3 per cent after rising 0.2 per cent in March. Wages increased 0.4 per cent. REUTERS