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US consumers step up spending in February, inflation remains muted

Washington: US consumer spending rose in February, in the latest sign that the economy was regaining strength after being chilled by bad weather.

The Commerce Department said on Friday that consumer spending increased 0.3 per cent last month after rising by a revised 0.2 per cent in January. Spending was previously reported to have increased 0.4 per cent in January.

Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of US economic activity, rising 0.3 per cent in February.

The dollar rose to a session high against the yen after the data. US stock index futures were little changed.

Spending in February was lifted by an increase in services consumption, likely because of increased demand for health care and utilities.

When adjusted for inflation, consumer spending rose 0.2 per cent in February after gaining 0.1 per cent in January.

This so-called real spending measure goes into the calculation of gross domestic product. Consumer spending rose at its fastest pace in three years in the fourth quarter, helping to lift economic growth to an annualised pace of 2.6 per cent during the period.

A combination of bad weather, a slow pace of inventory accumulation by businesses, the expiration of long-term unemployment benefits and cuts to food stamps is expected to hold back growth to around a 2 per cent rate in the first quarter.

But a rebound is expected as these factors fade.

Income rose 0.3 per cent last month after rising by the same margin in January. It continues to be supported by government transfers for health care payments.

Income at the disposal of households after adjusting for inflation rose 0.3 per cent. The saving rate, which is the percentage of disposable income households are socking away, rose to 4.3 per cent last month from 4.2 per cent in January.

There were few signs of inflation pressure in February. A price index for consumer spending edged up 0.1 per cent for a second straight month in February.

Prices in February rose 0.9 per cent from a year ago, compared to a 1.2 per cent advance in January over the previous 12 months. February’s increase was the smallest since October.

Excluding food and energy, the price index for consumer spending rose 0.1 per cent for an eighth straight month. Core prices were up 1.1 per cent from a year ago, after rising by the same margin in January.

Both inflation measures remain stuck below the Federal Reserve’s 2 per cent target. That suggests the Fed, which is expected to wrap up its monthly bond purchases by the end of 2014, will only gradually raise interest rates when it starts tightening monetary policy.