US consumer spending beats expectations in June; inflation accelerates

US consumer spending increased more than expected in June as Americans paid more for goods and services, with monthly inflation surging by the most since 2005.

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 1.1 per cent last month, the Commerce Department said on Friday (Jul 29). Data for May was revised up to show outlays gaining 0.3 per cent instead of 0.2 per cent as previously reported.

Economists polled by Reuters had forecast consumer spending would accelerate by 0.9 per cent.

Gross domestic product contracted at a 0.9 per cent annualised rate last quarter after declining at a 1.6 per cent pace in the first quarter.

Inflation heated up in June. The personal consumption expenditures (PCE) price index jumped 1.0 per cent last month. That was the largest increase since September 2005 and followed a 0.6 per cent gain in May. In the 12 months through June, the PCE price index advanced 6.8 per cent, the largest increase since January 1982. The PCE price index rose 6.3 per cent year-on-year in May.

Excluding the volatile food and energy components, the PCE price index shot up 0.6 per cent after climbing 0.3 per cent in May. The so-called core PCE price index increased 4.8 per cent on a year-on-year basis in June after rising 4.7 per cent in May.

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The Federal Reserve on Wednesday raised its policy rate by another three-quarters of a percentage point. It has now hiked that rate by 225 basis points since March. REUTERS