US consumer spending surged 0.9 per cent in January, just below market expectations, as shoppers spent all their income and dipped into savings despite a pickup in inflation, a US government report showed today.
The Commerce Department said personal income grew 0.7 per cent in January, the biggest gain since September and above Wall Street forecasts for a 0.6 per cent rise.
But consumers spent even faster, notching the largest spending increase since July and producing a -0.7 per cent saving rate. It was the third straight month in which Americans have tapped savings to finance their spending.
The personal saving rate - the proportion of money Americans sock away -- has not been above zero since March 2005.
The report also showed a pickup in inflation in January, though the year-over-year price rise outside of food and energy moderated slightly. US Treasury bond prices edged higher, while the dollar was little changed.
Economists said the strong January spending bodes well for a strong bounceback in economic growth in the first quarter, after gross domestic product growth at an annual rate of just 1.6 per cent in the final three months of 2005.
The Commerce Department's price index for consumer spending rose 0.5 per cent in January after being unchanged in December.
When volatile food and energy costs are stripped out, the so-called core PCE price index rose a milder 0.2 per cent, in line with forecasts, up from a 0.1 per cent increase the month before.
Over the last 12 months, inflation increased to 3.1 per cent from 2.8 per cent in December, while core prices rises moderated slightly, to a 1.8 percent increase from 1.9 per cent the previous month.
Analysts said the report did little to alter expectations the Federal Reserve will raise interest rates again at the end of the month to keep inflation pressures contained.