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US March consumer spending picks up

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Purchases, which make up more than two-thirds of the economy, rose 0.9% in March from the prior month, topping estimates.

Washington

US consumer spending rebounded in March while the Federal Reserve's preferred underlying inflation gauge eased to a one-year low, reinforcing the central bank's patient stance on interest rates even as the economy's main engine holds up.

Purchases, which make up more than two-thirds of the economy, rose 0.9 per cent in March from the prior month, topping estimates, while rising 0.1 per cent in February, according to a Commerce Department report Monday that combined two months after delays related to the government shutdown. Personal income rose 0.1 per cent in March, less than forecast.

Excluding food and energy, the Fed's preferred core-price gauge was little changed from the previous month, compared with estimates for a 0.1 per cent gain.

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The measure was up 1.6 per cent from a year earlier, the slowest since January 2018 and missing projections. The broader personal consumption expenditures price index rose 0.2 per cent in March from the previous month and climbed 1.5 per cent from a year earlier, also below forecasts.

The signs of consumer strength follow Friday's gross domestic product report showing consumer spending, the largest chunk of the economy, cooled in the first quarter to a 1.2 per cent pace of gains. That was offset by boosts from inventories and trade that helped economic growth accelerate to a 3.2 annualised rate.

The below-forecast price data on Monday showed inflation still below the Fed's 2 per cent goal despite low unemployment and what most economists see as above-average growth. Policy makers on Wednesday are expected to hold interest rates steady, though new growth and inflation data are likely to affect their characterisation of the economy.

A broader question for the Fed and chairman Jerome Powell - who holds a press conference on Wednesday - is how low core inflation could go before the central bank cuts interest rates to maintain the credibility of the 2 per cent goal for price gains. President Donald Trump has cited muted inflation as a reason for the Fed to ease monetary policy to keep economic growth strong.

The forecasts in Bloomberg survey had called for March spending to increase 0.7 per cent with incomes up 0.4 per cent. Economists had forecast the annual inflation gauge would climb 1.6 per cent while the core measure advanced 1.7 per cent.

Monday's Commerce Department release included personal spending data for both February and March. The earlier data were delayed because of the federal government shutdown that ended in January. The latest figures reflect a monthly breakdown of data already included in Friday's GDP report.

While the main personal income figure missed forecasts, wage and salary gains remained solid with a 0.4 per cent monthly rise in March following a 0.3 per cent increase in February. Lower interest income and farm payments dragged down the headline number, the Commerce Department said. BLOOMBERG