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US consumer spending increases solidly in June

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US consumer spending increased solidly in June as households spent more on restaurants and accommodation, building a strong base for the economy heading into the third quarter, while inflation rose moderately.

[WASHINGTON] US consumer spending increased solidly in June as households spent more on restaurants and accommodation, building a strong base for the economy heading into the third quarter, while inflation rose moderately.

The Commerce Department said on Tuesday consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.4 per cent last month. Data for May was revised up to show consumer spending advancing 0.5 per cent instead of the previously reported 0.2 per cent increase.

Last month's increase in consumer spending was in line with economists' expectations. The data was included in last Friday's second-quarter gross domestic product report, which showed consumer spending accelerating at a 4.0 per cent annualized rate during that period after a pedestrian 0.5 per cent pace in the first quarter.

The economy grew at a 4.1 per cent rate in the second quarter, almost double the January-March period's 2.2 per cent pace and the strongest performance in nearly four years. June's increase in consumer spending sets it on a higher growth path heading into the third quarter.

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Consumer spending last month was boosted by spending at restaurants and on accommodation. Spending on goods was unchanged after surging 0.9 per cent in May.

Spending on services accelerated 0.6 per cent after rising 0.3 per cent in the prior month.

Prices continued to steadily rise last month. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components gained 0.1 per cent. It had risen by 0.2 per cent in May.

That kept the year-on-year increase in the so-called core PCE price index at 1.9 per cent for a third straight month. The core PCE index is the Federal Reserve's preferred inflation measure. The core PCE hit the US central bank's 2 per cent inflation target in March for the first time since December 2011.

Fed officials were due to start a two-day meeting later on Tuesday. They are expected leave interest rates unchanged after increasing borrowing costs in June for the second time this year. The Fed has forecast two more rate hikes by December.

The moderate inflation helped to support consumer spending last month. When adjusted for inflation, consumer spending rose 0.3 per cent in June after a similar gain in May.

In June, personal income rose 0.4 per cent, matching May's increase. Wages gained 0.4 per cent. The saving rate was unchanged at 6.8 per cent last month.

REUTERS