U.S. August consumer spending and income fell, partly due to Hurricane Katrina, and inflation edged up amid record oil prices, bolstering expectations the Federal Reserve will keep raising interest rates, Reuters reported. U.S. manufacturers outside areas affected by Katrina -- like in the Midwest and New York -- reported improvements in September on higher demand, based on a pair of regional factory surveys released on Friday. On the consumer front, spending fell an unexpectedly steep 0.5 percent in August, the biggest drop since November 2001, the Commerce Department in a report on Friday that also showed a surprise decline in income potentially caused by Katrina. Katrina, likely the costliest U.S. storm ever, also hammered U.S. consumer confidence to their lowest level in 13 years, according to a closely followed consumer sentiment survey by the University of Michigan. The fall in spending came as energy prices pushed consumer inflation up 0.5 percent, the largest jump since September 1990, the Commerce Department said. Outside volatile food and energy costs, inflation as measured by the Fed's favorite gauge edged up 0.2 percent. Over the past year, so-called core inflation has climbed 2 percent, a tick faster than in the 12 months through July. --more 2328 Local Time 2028 GMT
