US consumer spending exceeds expectations in September; inflation rises

US consumer spending rose more than expected in September as underlying inflationary pressures continued to mount, keeping the Federal Reserve on track to raise interest rates by 0.75 percentage point for the fourth time this year.

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.6% last month, the Commerce Department said on Friday.

August data was revised to show spending increased by 0.6%, up from 0.4% as previously reported.

Economists polled by Reuters had forecast a rise of 0.4% in September.

The data was included in the third quarter Gross Domestic Product report released on Thursday (27), which showed a recovery in economic growth after the contraction in the first half of the year.

Last quarter’s 2.6% annualized growth pace was largely driven by a sharp reduction in the trade deficit.

Consumer spending growth slowed to a 1.4% rate from 2.0% in the April-June quarter. Last quarter domestic demand was the mildest in two years

The Fed raised its interest rate from near zero in March to the current range of 3% to 3.25%, the fastest pace of monetary tightening in a generation or more.

Cooling demand has led some economists to predict that the US central bank could signal slower increases at its policy meeting next week, although much depends on inflation, which remains high.

The PCE index rose 0.3% last month after a similar rise in August.

In the 12 months through September, the PCE price index increased by 6.2%, matching the August result.

Excluding the volatile food and energy components, the PCE price index rose 0.5% after increasing by the same margin in August.

The so-called core PCE advanced 5.1% year-on-year in September, after increasing 4.9% in August.

The Fed tracks PCE price indices for its 2% inflation target. Other measures of inflation are much higher.

The consumer price index increased by 8.2% in September year on year.