US consumer spending below expectations in July; inflation is slowing

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WASHINGTON — U.S. consumer spending barely rose in July, but inflation fell significantly, which could give the Federal Reserve some leeway to scale back its aggressive interest rate hikes.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1% last month, the Commerce Department said on Friday. June data has been revised down slightly to show spending growing 1.0% instead of 1.1% as previously reported.

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Economists polled by Reuters had forecast consumer spending to gain 0.4%.

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The national average gasoline price fell to around $4.27 a gallon in the last week of July after hitting a record high just above $5 in mid-June, the group’s data showed. AAA motorist defense. It probably freed up some money to spend elsewhere.

Prices for clothing and services such as air travel, hotel and motel accommodation also fell in July, dampening inflation.

A moderate pace of consumer spending in the second quarter helped mitigate the slowdown in the economy due to a marked slowdown in inventory accumulation caused by supply chain bottlenecks. Gross domestic product contracted at an annualized rate of 0.6% in the last quarter after shrinking at a pace of 1.6% in the first quarter.

The economy is not in recession, however. Measured on the income side, the economy grew at a 1.4% pace, slowing from the 1.8% rate in the January-March quarter, the government reported Thursday.

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Downside risks remain as the Federal Reserve aggressively tightens monetary policy to control inflation. There is, however, cautious optimism that the US central bank could slow the pace of its rate hikes if inflation continues to moderate.

The personal consumption expenditure (PCE) price index fell 0.1% last month after jumping 1.0% in June. In the 12 months to July, the PCE price index rose 6.3%. The PCE price index jumped 6.8% year-on-year in June.

Excluding the volatile food and energy components, the PCE price index gained 0.1% after a 0.6% run in June. The so-called core PCE price index rose 4.6% on an annual basis in July after rising 4.8% in June.

Fed officials are watching the PCE price indexes closely, in addition to the consumer price index. Although oil prices have fallen significantly, rental costs have remained high, leaving some economists hesitant to say inflation has peaked.

Fed Chairman Jerome Powell’s speech Friday at the annual conference of world central banks in Jackson Hole, Wyoming, may shed more light on rising borrowing costs in the United States. (Reporting by Lucia Mutikani; Editing by Paul Simao and Nick Zieminski)