U.S. consumers increased their spending by the largest amount in six months, and core inflation rose less than expected in July, though the 12-month pace of inflation remains high, the government said in a report Thursday that the inflation-wary Federal Reserve (Fed) will examine closely. The Commerce Department said that consumer spending in July rose by 0.8 percent, double the 0.4 percent gain in June. The 0.8 percent rise in consumer spending was the strongest performance since a 0.9 percent increase in January. Consumer spending is closely watched by economists because it accounts for two-thirds of U.S. overall economic activity. Personal incomes also rose, increasing by 0.5 percent, reflecting stronger wage growth. Wage and salary growth rose 0.6 percent in July, but the personal saving rate fell to a negative 0.9 percent, the 16th consecutive month that the savings rate had been negative. According to the report, core consumer prices rose a less-than-expected 0.1 percent in July, but the 12-month rate of inflation remained at 2.4 percent, the highest since September 2002. That increase in inflation is above the Fed s comfort level for annual price gains of 1 percent to 2 percent and illustrates the competing forces the central bank is facing. The Fed wants to slow the economy enough to keep inflation under control but not overdo the credit tightening and push and economy into recession.
