Consumers Spend a Bit More in June; Inflation Tame

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Luke Sharrett/Bloomberg via Getty Images
By Lucia Mutikani

WASHINGTON -- Consumer spending rose for a fifth straight month in June, but a moderation in price increases suggested the Federal Reserve won't raise interest rates anytime soon.

The Commerce Department said Friday consumer spending increased 0.4 percent after rising by an upwardly revised 0.3 percent in May.

Spending, which accounts for more than two-thirds of U.S. economic activity, had been forecast rising 0.4 percent after a previously reported 0.2 percent gain in May.

When adjusted for inflation, consumer spending increased 0.2 percent after edging up 0.1 percent the prior month.

The data was included in Wednesday's gross domestic product report, which showed the economy expanded at a 4 percent annual pace in the second quarter after shrinking at a 2.1 percent rate in the January-March period.

Consumer spending in the second quarter increased at a 2.5 percent pace and the rise in June augurs well for an acceleration in spending in the third quarter.

Spending is being supported by steady gains in income, which rose 0.4 percent in June, thanks to an improving labor market.

Despite the gains in spending, inflation retreated in June.

A price index for consumer spending rose 0.2 percent after advancing 0.3 percent in May. In the 12 months through June, the personal consumption expenditures price index rose 1.6 percent. It had increased 1.7 percent in May.

Excluding food and energy, prices edged up 0.1 percent after gaining 0.2 percent the prior month. The so-called core PCE price index is the Federal Reserve's preferred inflation measure.

It increased 1.5 percent from a year ago, still below the Fed's 2 percent target, after rising by the same margin in May.

The Fed on Wednesday changed its tone on inflation, saying "the likelihood of inflation running persistently below 2 percent has diminished somewhat."

The U.S. central bank, which is scaling back the amount of money it is pumping into the economy through monthly bond purchases, has kept its benchmark lending rate near zero since December 2008.

6 Little Changes You Can Make to Save Big Bucks
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Consumers Spend a Bit More in June; Inflation Tame
Most of us spend a ton of time researching our options when we first sign up for a plan or policy, then forget all about it and make monthly payments like a robot. But this can cost you.

If you've been on the same cell phone plan for a while, or you haven't looked at the terms of your insurance policies (home, life, auto) since you got them, it's time to do a review. Your circumstances may have changed, and new plans or deductions may have come out since you first signed up. Call up customer service (or your agent) and have them walk you through your options if you're having trouble comparing things on your own.
One of the biggest budget sucks is our own forgetfulness. We miss payments and incur late fees because we've misplaced our statement or didn't manage to get our mail out in time. We fail to save as much as we'd like because we just never remember to do it.

The easiest way to save yourself some money (and hassle and stress) is to set it and forget it. Sign up for auto-pay so your monthly bills are automatically deducted from your checking account. Have a certain amount automatically transferred each month from your checking to your savings account. Remove the human error factor, and your budget will be better for it.
We charge so much nowadays -- whether on credit cards or debit cards -- that it's easy to spend a lot of money without really registering it. When you have a set amount of bills in your wallet, however, it's extremely easy to see how much you've spent so far this month and how much is left.

Take those budget categories of yours -- groceries, entertainment, etc. -- and turn them into real, physical envelopes. At the beginning of each month, put that month's allotment of cash into each envelope. When you're running low, you'll know you need to be careful with your purchases. When you're out, you're done spending on that category till next month.
If you're prone to impulse purchases, imposing a waiting period on yourself is an easy way to break the cycle.

For large purchases, a 30-day waiting list is best. Write down the item that's calling to you, then wait 30 days before allowing yourself to buy it. You may realize in that time that you don't need it after all. Or you may forget why it called to you in the first place.

For smaller impulse buys, like that fancy new product you spotted in the grocery aisle, follow a 10-second rule. Before the item can go into your cart, spend 10 full seconds asking yourself if you really need it and how you will use it. Simply analyzing why you're getting something can disrupt the siren call of a product.
It's all too easy to blow $5, $10, even $20 on something, whether it's an extra meal out or a coffee on the run. In the grand scheme of things, it "doesn't seem like much" to us. But if you start thinking of your money in terms of the time it took you to earn that money, suddenly you find yourself evaluating your spending choices a little closer.

Figure out what you make per hour if you're salaried (if you're hourly, this will be easy). Let's say you make $15 per hour. For every $15 you spend, you'll have to spend another hour of your time at work to pay for that item. A coffee a day for a week can cost you an hour or two. And bigger items, like that flat screen TV you're eyeing? You get the drift. Framing purchases in light of time spent can help you make sure something is worth it.
In the end, a budget is simply a means of making sure your money is working for you. It allows you to see how much you're brining in and allocate it towards the things that are most important to you. If you can hold those bigger goals in mind, everyday budgeting becomes easier.

If you're wondering whether or not to buy something, ask yourself if that money would be better spent towards your big goal. Put a visual reminder in your wallet to keep you on task-like a photo of a sandy beach if you're trying to save up money for a trip. Viewing your budget in terms of what it will allow you accomplish-not the things it won't allow you to buy, can revolutionize your spending.

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