U.S. consumer spending falls unexpectedly in August

U.S. consumer spending unexpectedly fell for the first time in seven months in August but inflation showed signs of accelerating, mixed signals that could keep the Federal Reserve cautious about raising interest rates.

The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.1 percent last month after accounting for inflation.

Analysts polled by Reuters had expected a 0.1 percent gain.

Robust consumer spending partially offset weak business investment and falling business inventories in the second quarter when the economy expanded at a lackluster 1.4 percent annual rate.

Overall economic growth could still accelerate in the current quarter even with August's slight decline in consumer spending, although households appear to spending with less gusto than in prior months.

Consumer spending has been driven by a tightening labor market, which Fed Chair Janet Yellen said this week might be lifting incomes. Personal income rose 0.2 percent in August, in line with expectations.

Consumer prices also rose about as much expected, with the price index outside food and energy increasing 0.2 percent from the prior month. That left inflation outside food and energy at 1.7 percent in the 12 months through August, up a tenth of a percentage point from the prior month and closer to the Fed's 2 percent inflation target.

Yellen said last week she expected the U.S. central bank would raise interest rates once this year to keep the economy from eventually overheating.

(Reporting by Jason Lange; Editing by Paul Simao)