US consumer spending shot up a surprisingly strong 0.9 per cent in December as shoppers dipped into savings or tapped assets to make purchases, a government report showed today.
The Commerce Department said its price index for consumer spending was flat for the month, with the core rate, which strips out food and energy, up just 0.1 per cent. Analysts had expected the core index to rise 0.2 per cent.
The rise in spending, which beat forecasts for a 0.7 per cent gain, outstripped the second straight monthly 0.4 per cent increase in personal income. In addition, November's spending figures were revised up.
With spending rising faster than income, the personal saving rate - the per cent of after-tax income consumers put away - came in at a negative 0.7. It was the lowest saving rate since August and marked the seventh consecutive month consumers tapped into their accumulated wealth.
The report, which came a day before a Federal Reserve meeting on interest rates, showed inflation better contained in December than many forecasters had expected. However, the department revised up its October and November core inflation readings slightly.
The Fed is widely expected to push overnight interest rates up by a quarter-percentage point to 4.5 per cent at its meeting on Tuesday, the final day of Alan Greenspan's tenure as chairman.
Some analysts think a rate increase, which would be the 14th consecutive increase, may mark the end of a 19-month credit-tightening campaign. But financial markets see better-than-even odds of small increase at the next meeting at the end of March.