US inflation accelerates

WASHINGTON: U.S. consumer spending rose modestly in April, starting the second quarter on a soft note as high gasoline prices continued to squeeze household finances and keep inflation pressures simmering.

The Commerce Department said on Friday consumer spending increased 0.4 percent, rising for a 10th straight month, after a 0.5 percent gain in March. It also said annual inflation rose at its fastest pace in 12 months.

Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.5 percent last month.When adjusted for inflation, spending nudged up 0.1 percent last month after gaining 0.1 percent in March.

"This shows that the trend going in the second quarter is weaker than what people had thought. This promotes caution about projecting faster growth in the second quarter," said Pierre Ellis, a senior global economist at Decision Economics in New York.

Consumer spending rose at a 2.2 percent annual rate in the first quarter, braking sharply from a 4 percent pace in the October-December period. That contributed to holding back growth to a 1.8 percent pace during the quarter.

But a recent cooling in gasoline prices should ease some of the pressure on households and boost spending in the months ahead.

The national price for regular lead-free gasoline prices slipped to $3.90 a gallon in the week through Monday, according to the Energy Information Administration, after peaking just above $4 a gallon early in the month.U.S. government bond prices extended losses on the data, while stock index futures were little changed.

High food and energy prices in April kept inflation elevated last month, with the personal consumption expenditures price (PCE) index rising 0.3 percent after advancing 0.4 percent in March.

Compared to April last year, the index was up 2.2 percent, the biggest rise in a year, after increasing 1.8 percent in March.The core PCE index excluding food and energy - increased 0.2 percent on month after rising 0.1 percent in March.

The core index, which is closely watched by Federal Reserve officials, increased 1.0 percent in the 12 months through April, the largest gain since September.The index rose 0.9 percent year-on-year in March and the Fed would like to see it closer to 2 percent.

Incomes rose 0.4 percent last month, in line with expectations and after a 0.4 percent increase in March. Disposable incomes adjusted for inflation were flat and savings fell to an annual rate of $570.6 billion, the lowest since August 2009, from $576.7 billion in March.

Copyright Reuters, 2011