Consumers boost spending as incomes rise

Consumers boosted their spending again in October, while their incomes increased at the fastest clip in six months. A key gauge of inflation watched by the Federal Reserve posted the fastest 12-month gain in two years.

Consumer spending increased 0.3% in October after a revised 0.7% jump in September, the Commerce Department said Wednesday. Incomes increased 0.6%, the best showing since April.

An inflation gauge closely followed by the Fed increased 1.4% compared with a year earlier, the fastest 12month advance since 2014. The rise was still below the Fed’s 2% target, but with inflation firming, the central bank is expected to boost a key interest rate in December.

The inflation gain marked the strongest pace since prices had risen 1.5% for the 12 months ending in October 2014.

By comparison, the 12-month increase a year earlier was a tiny 0.3% during a time when oil prices were plunging. The absence of inflationary pressures has been a key reason that the Fed has been slow to boost its benchmark interest rate. But with prices rising, the central bank is widely expected to increase the rate by a quarter-point at its December meeting, a year after it raised rates for the first time in nearly a decade.

With incomes rising faster than spending, the saving rate jumped to 6% in October, up from 5.7% in September.

The rise in spending reflected a 1% increase in purchases of durable goods such as autos and a 1.4% rise in spending on nondurable goods. Spending on services such as doctor’s visits and utilities fell 0.2% in October.

Spending is closely watched since it accounts for more than two-thirds of economic activity. The overall economy grew at a solid 3.2% annual pace in the July-September quarter. Analysts believe that growth will slow a bit to around 2% in the current quarter.