US consumer spending posts biggest gain in more than six years

Inflation rose steadily in April, new data shows

US consumer spending recorded its biggest increase in more than six years in April and inflation rose steadily.

The latest figures provide more signs of an acceleration in economic growth that could persuade the Federal Reserve to raise interest rates again as early as June.

The Commerce Department said on Tuesday consumer spending, which accounts for more than two-thirds of US economic activity, surged 1.0 per cent last month as households bought cars and a range of other goods and services.

Consumer spending in March was revised down to show it being flat instead of the previously reported 0.1 per cent gain.

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Last month’s increase was the largest since August 2009 and beat economists’ expectations for a 0.7 per cent rise. When adjusted for inflation, consumer spending shot up 0.6 per cent, the biggest gain since February 2014, after being flat in March.

The strong consumer spending reported joined data on goods exports, industrial production, housing starts and home sales in suggesting the economy was regaining momentum after growing at a lacklustre 0.8 per cent annualised rate in the first quarter.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.2 per cent last month after edging up 0.1 per cent increase in March. In the 12 months through April the core PCE rose 1.6 per cent after a similar increase in March.

The core PCE is the Fed’s preferred inflation measure and is running below the US central bank’s 2 per cent target.

Minutes from the Fed's April 26-27 policy meeting published recently showed most of its policymakers considered it appropriate to raise rates in June if data continued to point to an improvement in second-quarter growth. Similar sentiments were echoed by Fed chairmain Janet Yellen on Friday.

The central bank hiked its benchmark overnight interest rate in December for the first time in nearly a decade.

Last month, consumer spending was buoyed by a 2.3 per cent jump in purchases of long-lasting manufactured goods such as cars. Spending on services increased 0.6 per cent.

Personal income increased 0.4 per cent after rising by the same margin in March. Wages and salaries rose 0.5 per cent after advancing 0.4 per cent in March.

With spending outpacing income, savings fell to $751.1 billion last month from $809.4 billion in March.

Reuters