US consumer spending dips, inflation creeps up

poker Washington: US consumer spending fell for the first time in a year in April after two months of solid gains, but the decline probably will not change expectations for a sharp rebound in economic growth this quarter.

While demand cooled last month, there are signs price pressures in the economy are stirring, with an inflation gauge rising at its quickest pace since November 2012.

The Commerce Department said on Friday consumer spending slipped 0.1 per cent in April after rising by a revised one per cent in March, which was the largest gain since August 2009.

Last month's decline was the first since April 2013.

Spending, which accounts for more than two-thirds of US economic activity, was previously reported to have increased 0.9 per cent in March and economists had expected it to rise 0.2 per cent in April.

"Given the relatively upbeat picture described by both consumer confidence and labour market statistics, we would not read too much out of today's decline in consumer spending," said Annalisa Piazza, an economist at Newedge Strategy.

US stock index futures slipped on the data, while prices for US Treasury debt extended gains.

Data released on Thursday showed the economy contracted in the January-March period for the first time in three years.

Even though demand slackened in April, inflation is creeping up. A price index for consumer spending increased 0.2 per cent last month after rising by the same margin in March.

That pushed it up 1.6 per cent from a year ago, the largest gain since November 2012. It had advanced 1.1 per cent in March.

Excluding food and energy, prices increased 0.2 per cent in April. Prices were up 1.4 per cent from a year ago, the biggest year-over-year increase since March 2013. That followed a 1.2 per cent rise in the prior month.

Inflation has been suppressed by weak medical care costs related to cuts in government spending. That anchor is slipping away and rising medical care costs together with increasing rents should lift inflation this year.

Both inflation measures remain below the Federal Reserve's two per cent inflation target. The Fed, which is scaling back its monthly bond purchases, is not expected to start raising interest rates until sometime in 2015. It has kept its benchmark lending rate near zero since December 2008.

In April, consumer spending was weighed down by a 0.5 per cent drop in purchases of durable goods. Spending on services slipped 0.1 per cent.

When adjusted for inflation, consumer spending fell 0.3 per cent after rising 0.8 per cent in March. April's decline was the largest since September 2009.

Income increased 0.3 per cent last month after rising 0.5 per cent in the prior month. Income at the disposal of households after adjusting for inflation and taxes increased 0.2 per cent.

With income growth outpacing spending, the saving rate, which is the percentage of disposable income households are socking away, increased to four per cent from 3.6 per cent in March.

Source: gulfnews.com

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