US consumer spending cooled sharply and personal incomes fell in July as the stimulus of tax rebates wore off and inflation mounted.
Spending rose 0.2% in July from June, the weakest gain since February, while personal incomes slid 0.7%, the steepest drop since August 2005.
Spending was in line with most analysts' forecasts but the decline in incomes was sharply steeper than the 0.2% expected.
In June, consumer spending rose 0.6% and incomes edged 0.1% higher, according to data the US Commerce Department left unrevised.
Disposable incomes after taxes fell 1.1% in July, after falling 1.9% in June.
On the inflation front, the personal consumer expenditure (PCE) price index rose 0.6%, cooling slightly from a 0.7% monthly rise in June. Core PCE, excluding food and energy prices, rose 0.3%, mirroring June's gain.
On a 12-month basis, inflation steadily mounted. The July headline PCE was 4.5%, compared with 4.0% in June, and was the highest price rise since February 1991.
The rise in core PCE was more moderate, up 2.4% in July from 2.3% June. Still, the July core reading was the highest since February 2007.
The PCE index is closely watched by the Federal Reserve for a reading on inflation in the world's largest economy, where consumer spending fuels two-thirds of activity.
