U.S. consumer spending rose marginally in February and overall inflation retreated, suggesting the Federal Reserve will continue to gradually raise interest rates this year despite a tightening labor market.
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The Commerce Department said on Monday that consumer spending edged up 0.1 percent after a downwardly revised 0.1 percent gain in January. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have increased 0.5 percent in January.
Last month's increase was in line with economists' expectations. When adjusted for inflation, consumer spending rose 0.2 percent after being unchanged in January.
Last month, inflation moderated, with a price index for consumer spending dipping 0.1 percent after nudging up 0.1 percent in January. In the 12 months through February, the personal consumption expenditures (PCE) price index increased 1.0 percent after rising 1.2 percent in January.
Excluding food and energy, prices gained 0.1 percent after advancing 0.3 percent in January. In the 12 months through February, the so-called core PCE price index increased 1.7 percent after a similar increase in January.
The core PCE is the Fed's preferred inflation measure and is running below the U.S. central bank's 2 percent target. The slowdown in the monthly core PCE reading comes after Fed Chair Janet Yellen recently expressed skepticism over the sustainability of the gains in core inflation measures.
Yellen told reporters this month that "there may be some transitory factors" behind the run-up in prices.
The relatively soft inflation suggests the Fed will continue to gradually raise interest rates this year despite a tightening labor market. The central bank hiked its benchmark overnight interest rate in December for the first time in nearly a decade.
Consumer spending last month was held back by a 0.7 percent drop in purchases of goods. Spending on services rose 0.4 percent.
Personal income rose 0.2 percent after rising 0.5 percent in January. The slowdown in income growth is likely temporary amid anecdotal evidence that the tightening jobs market, marked by pockets of skills shortages, is driving up wages.
(Reporting by Lucia Mutikani; Editing by Paul Simao)