US Consumer Spending Rises Marginally in February; Inflation Moderates

Washington: US consumer spending rose marginally in February and overall inflation retreated, suggesting the Federal Reserve could take its time in raising interest rates this year despite a tightening labour market.

The Commerce Department said on Monday that consumer spending edged up 0.1 per cent as households cut back on goods purchases after a downwardly revised 0.1 per cent gain in January. Consumer spending, which accounts for more than two-thirds of US economic activity, was previously reported to have increased 0.5 per cent in January.

Last month’s increase was in line with economists’ expectations. When adjusted for inflation, consumer spending rose 0.2 per cent. Inflation-adjusted consumer spending for January was revised down to show it unchanged rather than the 0.4 per cent rise that was previously reported.

That points to some cooling in consumer spending and poses a risk to first-quarter gross domestic product growth estimates, currently at around a 1.5 per cent annualized rate. The economy grew at a 1.4 per cent pace in the fourth quarter.

Prices for US government debt inched up after the data, while the dollar fell to session lows against the euro and Swiss franc. US stock futures were trading higher.

Inflation moderated last month, with a price index for consumer spending dipping 0.1 per cent after nudging up 0.1 per cent in January. In the 12 months through February, the personal consumption expenditures (PCE) price index increased 1.0 per cent after rising 1.2 per cent in January.

Excluding food and energy, prices gained 0.1 per cent after advancing 0.3 per cent in January. In the 12 months through February, the so-called core PCE price index increased 1.7 per cent after a similar increase in January.

The core PCE is the Fed’s preferred inflation measure and is running below its 2 per cent target. The slowdown in the monthly core PCE reading comes after Fed Chair Janet Yellen recently expressed skepticism over the sustainability of the gains in core inflation measures.

Ms Yellen told reporters this month “there may be some transitory factors” behind the run-up in prices.

The relatively soft inflation suggests the US central bank will continue to gradually raise interest rates this year even as the labour market tightens. The Fed hiked its benchmark overnight interest rate in December for the first time in nearly a decade.

Consumer spending last month was held back by a 0.7 per cent drop in purchases of goods. Spending on services rose 0.4 per cent.

Personal income rose 0.2 per cent after rising 0.5 per cent in January. The slowdown in income growth is likely temporary amid anecdotal evidence that the tightening jobs market, marked by pockets of skills shortages, is driving up wages.

With spending lagging income growth, savings rose to their highest level in more than three years.