Consumers Spent More in June as Prices Rose

consumer prices spending inflation new car purchases higher gas prices
Nam Y. Huh/APConsumer spending rose in June, helped by an increase in auto sales.

WASHINGTON -- U.S. consumer spending increased and inflation pushed higher in June, which could strengthen expectations that the Federal Reserve will curtail its bond purchases later this year.

The Commerce Department said Friday consumer spending rose 0.5 percent, lifted by automobile purchases and higher gasoline prices. May's increase was revised down to 0.2 percent from a previously reported 0.3 percent.

June's increase in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was in line with economist expectations.

A price index for consumer spending rose 0.4 percent, the largest gain since February. It had edged up 0.1 percent in May. During the past 12 months, inflation rose 1.3 percent, still below the Fed's 2 percent target.

The index advanced 1.1 percent in the period through May.

With prices picking up, consumer spending adjusted for inflation nudged up 0.1 percent. The so-called consumer spending, which goes into the calculation of gross domestic product, had increased by the same margin in May.

The consumer spending numbers were included in the second-quarter GDP report Wednesday, which showed the economy grew at a 1.7 percent annual pace after expanding at a 1.1 percent rate in the first three months of the year.

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Spending has been held back by an increase in taxes at the start of the year, but is expected to accelerate in the second half of the year, supported by a steady jobs market and a recovery in housing.

The economy added 162,000 jobs in July, compared to 188,000 in the previous month, the Labor Department said Friday. Analysts polled by Reuters had forecast jobs growth of 184,000 for July.

The rise in inflation in June should provide some comfort to Fed officials who Wednesday nodded to the potential dangers of inflation running too low, and bring them close to reducing the central bank's $85 billion a month in bond purchases.

Still, inflation remains benign. The price index for consumer spending, excluding food and energy, rose 0.2 percent in June. It was the largest increase since January and followed a 0.1 percent gain in May.

Core prices were up 1.2 percent from a year ago, rising by the same margin for a third consecutive month.

A firming labor market is helping to prop up income, which in June gained 0.3 percent after rising 0.4 percent in May.

But government salaries fell, reflecting furloughs at agencies as part of Washington's belt-tightening.

With spending outpacing income growth, the saving rate -- the percentage of disposable income households are socking away -- fell to 4.4 percent from 4.6 percent.