US consumer spending rises; inflation firming
INDICATORS SHOW US CENTRAL BANK ON COURSE TO HIKE RATES
US consumer spending increased solidly in July, pointing to strong economic growth early in the third quarter, while a measure of underlying inflation hit the Federal Reserve’s 2 per cent target for the third time this year.
Other data showed increase in new applications for unemployment benefits last week, but the underlying trend continued to point to a robust labour market.
Strong domestic demand, rising inflation and a tightening jobs market likely will keep the US central bank on course to increase interest rates for a third time this year in September.
The Commerce Department said consumer spending, which accounts for more than twothirds of US economic activity, rose 0.4 per cent last month after advancing by the same margin in June. Households spend more at restaurants and on accommodation last month.
There was also a rise in spending on prescription medication. Economists polled by Reuters had forecast consumer spending rising 0.4 per cent in July.
Demand strong
With demand strong last month, prices continued their gradual upward trend. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2 per cent after edging up 0.1 per cent in June.
That lifted the year-on-year increase in the so-called core PCE price index to 2.0 per cent from 1.9 per cent in June. The core PCE index is the Fed’s preferred inflation measure. It hit the US central bank’s 2 per cent inflation target in March for the first time since April 2012.
Minutes of the Fed’s July 31Aug. 1 meeting published last week showed some policymakers worried “a prolonged period in which the economy operated beyond potential could give rise to inflationary pressures.” The dollar was largely unchanged against a basket of currencies after the data. US stock index futures were trading lower while prices of US Treasuries were higher.
Strong consumer spending helped fire up economic growth in the second quarter, with gross domestic product rising at a 4.2 per cent annualised rate, the fastest in nearly four years.