U.S. consumer spending, inflation data keep rate hikes on table

Fri Feb 26, 2016 1:50pm EST
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By Lucia Mutikani

WASHINGTON (Reuters) - 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.

The upbeat data on Friday added to reports on manufacturing and the labor market in suggesting economic growth regained momentum early this year after slowing in the fourth quarter.

The growth outlook was further bolstered by steady consumer sentiment in February despite a recent stock market sell-off. That should help ease fears of a looming recession and probably allow the Fed to hike rates this year. The U.S. central bank raised rates in December for the first time in nearly a decade.

"Growth is rebounding, inflation is picking up and stocks have recovered about half the loss posted this year. Conditions are moving back toward supporting a rate hike," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.     

The Commerce Department said consumer spending increased 0.5 percent, the largest gain in 10 months, as households ramped up purchases of a range of goods and a 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 percent in December. Economists polled by Reuters had forecast consumer spending advancing 0.3 percent last month after a previously unchanged reading in December.

The dollar rose against a basket of currencies on the data, while prices for U.S. Treasury debt fell. U.S. stocks were trading higher.

The pick-up in consumer spending stimulated price pressures last month, which will most likely increase Fed officials' confidence that inflation will move toward the U.S. central bank's 2 percent target despite low inflation expectations.   Continued...

A woman shops at The Grove mall in Los Angeles November 26, 2013. REUTERS/Lucy Nicholson