Washington – U.S. Consumer Spending Dips; Inflation Creeps Up

Washington – U.S. consumer spending fell for the first time in a year in April after two months of solid gains, but the decline probably will not change expectations for a sharp rebound in economic growth this quarter.

While demand cooled last month, there are signs price pressures in the economy are stirring, with an inflation gauge rising at its quickest pace since November 2012.

The Commerce Department said on Friday consumer spending slipped 0.1 percent in April after rising by a revised 1.0 percent in March, which was the largest gain since August 2009.

Last month’s decline was the first since April 2013. Spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have increased 0.9 percent in March and economists had expected it to rise 0.2 percent in April.

“Given the relatively upbeat picture described by both consumer confidence and labor market statistics, we would not read too much out of today’s decline in consumer spending,” said Annalisa Piazza, an economist at Newedge Strategy.

U.S. stock index futures slipped on the data, while prices for U.S. Treasury debt extended gains.

Data released on Thursday showed the economy contracted in the January-March period for the first time in three years.

Even though demand slackened in April, inflation is creeping up. A price index for consumer spending increased 0.2 percent last month after rising by the same margin in March.

That pushed it up 1.6 percent from a year ago, the largest gain since November 2012. It had advanced 1.1 percent in March.

Excluding food and energy, prices increased 0.2 percent in April. Prices were up 1.4 percent from a year ago, the biggest year-over-year increase since March 2013. That followed a 1.2 percent rise in the prior month.

Inflation has been suppressed by weak medical care costs related to cuts in government spending. That anchor is slipping away and rising medical care costs together with increasing rents should lift inflation this year.

Both inflation measures remain below the Federal Reserve’s 2 percent inflation target. The Fed, which is scaling back its monthly bond purchases, is not expected to start raising interest rates until sometime in 2015. It has kept its benchmark lending rate near zero since December 2008.

In April, consumer spending was weighed down by a 0.5 percent drop in purchases of durable goods. Spending on services slipped 0.1 percent. When adjusted for inflation, consumer spending fell 0.3 percent after rising 0.8 percent in March. April’s decline was the largest since September 2009.

Income increased 0.3 percent last month after rising 0.5 percent in the prior month. Income at the disposal of households after adjusting for inflation and taxes increased 0.2 percent.

With income growth outpacing spending, the saving rate, which is the percentage of disposable income households are socking away, increased to 4.0 percent from 3.6 percent in March.