US consumer spending dips as inflation creeps up

Friday 30 May 2014 14.59
US consumer spending slips 0.1% in April
US consumer spending slips 0.1% in April

US consumer spending fell for the first time in a year in April after two months of solid gains, but the decline probably will not change expectations for a sharp rebound in economic growth this quarter.

While demand cooled last month, there are signs price pressures in the US economy are stirring, with an inflation gauge rising at its quickest pace since November 2012.

The US Commerce Department said that consumer spending slipped 0.1% in April after rising by a revised 1% in March, which was the largest gain since August 2009. 

Last month's decline was the first since April 2013. Spending, which accounts for more than two-thirds of US economic activity, was previously reported to have increased 0.9% in March and economists had expected it to rise 0.2% in April.

Economic data released yesterday showed the US economy contracted in the three months from January to March for the first time in three years.

Even though demand slackened in April, inflation is creeping up. A price index for consumer spending increased 0.2% last month after rising by the same margin in March. 

That pushed it up 1.6% from a year ago, the largest gain since November 2012. It had advanced 1.1% in March.

Excluding food and energy, prices increased 0.2% in April. Prices were up 1.4 percent from a year ago, the biggest year-over-year increase since March 2013. That followed a 1.2% rise the previous month.

Inflation has been suppressed by weak medical care costs related to cuts in government spending. That anchor is slipping away and rising medical care costs together with increasing rents should lift inflation this year. 

Both inflation measures remain below the Federal Reserve's 2% inflation target. The Fed, which is scaling back its monthly bond purchases, is not expected to start raising interest rates until sometime in 2015. It has kept its benchmark lending rate near zero since December 2008.

In April, consumer spending was weighed down by a 0.5% drop in purchases of durable goods. Spending on services slipped 0.1%.

When adjusted for inflation, consumer spending fell 0.3% after rising 0.8% in March. April's decline was the largest since September 2009.

US incomes increased 0.3% last month after rising 0.5% in the prior month. Income at the disposal of households after adjusting for inflation and taxes increased 0.2%.