U.S. consumer spending rose solidly in January and underlying inflation picked up by the most in four years, keeping Federal Reserve interest rate increases on the table this year.
Reuters reports that the upbeat data on Friday added to reports on manufacturing and employment that have suggested economic growth picked up at the start of the year after slowing in the fourth quarter.
The economic growth outlook was further bolstered by steady consumer sentiment in February despite recent stock market turmoil. That should help ease fears of a looming recession.
“Consumers revved it up a notch and inflation quickened as well at the start of the year. Consumers are sending a strong message that the economy is on the right track for continued growth this year,” Chris Rupkey, chief economist at MUFG Union Bank in New York, tells Reuters.
The Commerce Department says consumer spending increased 0.5%, the largest gain since March, as households ramped up purchases of a range of goods and the return to normal winter temperatures boosted demand for heating.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose by an upwardly revised 0.1% in December. Economists polled by Reuters had forecast consumer spending rising 0.3% last month after a previously unchanged reading in December. Prices for U.S. Treasury debt extended losses on the data, while U.S. stocks were trading higher.
With spending picking up, there were also signs of price pressures stirring last month, which will most likely be welcomed by Fed officials amid low inflation expectations that could keep inflation below the U.S. central bank’s 2% target for an extended period.
A price index for consumer spending edged up 0.1% after dipping 0.1% in December. In the 12 months through January, the personal consumption expenditures (PCE) price index rose 1.3%, the largest increase since October 2014. The PCE index advanced 0.7% in December.
Excluding food and energy, prices rose 0.3%. That was the largest increase since January 2012 and followed a 0.1% gain in December.
