US consumer spending rises

Washington:  US consumer spending rose slightly less than expected in July and annual inflation increased at its slowest pace since late 2015, which could diminish expectations of an interest rate increase in December.
Inflation remains stubbornly low even as the labour market is near full employment, a conundrum for the Federal Reserve. Other data yesterday showed a small increase in new applications for unemployment benefits last week amid a tightening job market. The Commerce Department said consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.3 percent last month after a 0.2 percent gain in June. Economists had forecast consumer spending rising 0.4 percent in July.
The personal consumption expenditures (PCE) price index excluding food and energy edged up 0.1 percent in July. The so-called core PCE price index, which is the Fed’s preferred inflation measure, has now risen by the same margin for three straight months. In the 12 months through July, the core PCE price index increased 1.4 percent, the smallest gain since December 2015.  That followed a 1.5 percent rise in the 12 months through June.  The core PCE price index has undershot the U.S. central bank’s 2 percent target for the past five years.
The combination of moderate consumer spending and tepid inflation casts doubts on whether the Fed will increase interest rates at its December policy meeting, as most economists expect.  The US central bank has raised borrowing costs twice this year.
The consumer spending report still suggested the economy got off to a strong start in the third quarter after gross domestic product increased at a 3.0 percent annualised rate in the April-June period, the fastest in more than two years.