Consumers Spend a Bit More in June; Inflation Tame

consumer spending
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.

%VIRTUAL-WSSCourseInline-876%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.