US spending misses target due to drop in gasoline prices, inflation eases

Slowdown in inflation likely to be welcomed by Fed officials

US consumer spending barely rose in July as a drop in gasoline prices weighed on receipts at service stations, but monthly inflation slowed down considerably, which could give the Federal Reserve room to scale back its aggressive interest rate hikes.

Though the report from the Commerce Department on Friday showed a modest gain in personal income last month, wages increased strongly, which could help to underpin consumer spending and keep the economy growing, though moderately.

The slowdown in inflation is likely to be welcomed by Fed officials. Fed Chair Jerome Powell is due on Friday to address the annual Jackson Hole global central banking conference in Wyoming and could shed more light on how much further US borrowing costs need to rise. The Fed has hiked its policy rate by 225 basis points since March.

Consumer spending, which accounts for more than two-thirds of US economic activity, edged up 0.1 per cent last month. Data for June was revised slightly down to show outlays advancing 1.0 per centinstead of 1.1 per cent as previously reported. Economists polled by Reuters had forecast consumer spending would gain 0.4 per cent.

The national average gasoline price dropped to about $4.27 per gallon in the last week of July after hitting an all-time high just above $5 in mid-June, according to data from motorist advocacy group AAA. 

Gross domestic product contracted at a 0.6 per cent annualised rate last quarter after shrinking at a 1.6 per cent pace in the first quarter.

When measured from the income side, the economy grew at a 1.4 per cent pace.