March consumer spending up 0.4% as wages rise

WASHINGTON — Americans boosted their spending by 0.4 percent in March, the best showing in three months. Meanwhile, a key gauge of inflation closely watched by the Federal Reserve rose at the fastest pace in more than a year.

The March increase in consumer spending followed two months of very weak readings with no gain in February and only a 0.2 percent increase in January, the Commerce Department reported Monday. The result is an encouraging sign that economic growth, which slowed in the first quarter, will accelerate in the current quarter.

Personal incomes advanced a moderate 0.3 percent in March, matching the February gain, but they have been growing strongly.

Consumer spending is considered key to economic growth since it accounts for 70 percent of economic activity. The economy slowed to growth of 2.3 percent in the first quarter, reflecting a slowing in consumer spending. Many analysts believe stronger consumer spending this quarter will lift overall growth back to rates above 3 percent.

An inflation gauge tied to consumer spending advanced 1.9 percent in March compared with 12 months ago. That was the fastest pace since a similar 12-month gain of 1.9 percent in February 2017 and prompted some analysts to predict that the central bank will ultimately decide to raise rates four times this year to make sure inflation does not get out of hand. That would be up from three rate hikes last year.

“As the weaker dollar feeds through to stronger imported goods prices and wage pressures continue to build, we think inflation will rise above the Fed’s 2 percent target later this year and trend gradually higher from there,” said Michael Pearce, senior U.S. economist for Capital Economics.

The Fed seeks moderate annual increases in inflation of around 2 percent but has fallen below that target the past six years.