Consumer Spending Rises, But Inflation Picks Up, too

WASHINGTON (Reuters) — Consumers increased spending for a ninth consecutive month in March as they stretched to cover higher costs for food and gasoline, with inflation posting its biggest year-on-year gain in 10 months.

Despite the rising cost of living, Americans grew a bit more optimistic about the economy this month and even lowered their expectations for inflation over the medium to long term, another report showed Friday.

Consumer spending, which drives 70 percent of the economy, rose 0.6 percent last month after advancing 0.9 percent in February, the Commerce Department said. But prices rose 0.4 percent month on month, leaving spending up just 0.2 percent after adjusting for inflation.

While commodity prices have reduced purchasing power, consumers entered the second quarter with a slightly upbeat outlook.

The Thomson Reuters/University of Michigan’s consumer sentiment index rose to 69.8, from 67.5 in March. The survey’s one-year inflation expectation was unchanged at 4.6 percent, but the five-to-10-year inflation outlook slipped to 2.9 percent, from 3.2 percent in March.

A third report showed factory activity in the Midwest slowed, although it remained at a strong level. The data did little to shake economists’ convictions that growth would pick up in the current quarter.

Economists said tepid demand in the first quarter had left businesses with less of a need to rebuild inventories.

“The need for new orders and production to beef up inventories is greatly reduced and as a consequence, we are seeing the factory sector slow down somewhat,” said Richard DeKaser, an economist at the Parthenon Group.

“Manufacturing is coming off a sprint earlier this year and still moving ahead at a healthy clip.”

The spending report showed consumer prices up 1.8 percent from a year ago — the largest 12-month gain since last May.

An index of core prices, which strips out food and energy costs, rose just 0.1 percent from February, keeping its year-on-year gain at 0.9 percent.

A separate report from the Labor Department showed wages grew at a 0.4 percent rate in the first quarter, and were up only 1.6 percent from a year ago.

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