U.S. consumer spending slows in February; inflation cooling

WASHINGTON (Reuters) – U.S. consumer spending rose moderately in February, likely payback after surging the prior month, and while inflation showed signs of cooling it remained elevated, which could see the Federal Reserve raising interest rates one more time this year.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.2% last month, the Commerce Department said on Friday. Data for January was revised higher to show spending vaulting 2.0% instead of 1.8% as previously reported. Economists polled by Reuters had forecast consumer spending gaining 0.3%.

Consumer spending also slowed because of modest income gains as the boost from the biggest cost of living adjustment since 1981 for Social Security beneficiaries in January faded.

The upward revision to January and last months gain put consumer spending on a higher growth path in the first quarter after it rose at its slowest pace in 2-1/2 years in the October-December quarter, and keep the economy expanding.

Financial market stress following the recent collapse of two regional banks has amplified the risk of a recession later this year. Banks have tightened lending standards, which could make it harder for households to access credit, weighing on demand.

The Fed last week raised its benchmark overnight interest rate by a quarter of a percentage point, but indicated it was on the verge of pausing further increases in borrowing costs in a nod to the financial market turmoil. The U.S. central bank has hiked its policy rate by 475 basis points since last March from the near-zero level to the current 4.75%-5.00% range.

The personal consumption expenditures (PCE) price index increased 0.3% last month after accelerating 0.6% in January. In the 12 months through February, the PCE price index advanced 5.0% after rising 5.3% in January.

Excluding the volatile food and energy components, the PCE price index climbed 0.3% after increasing 0.5% in January. The so-called core PCE price index rose 4.6% on a year-on-year basis in February after gaining 4.7% in January. The Fed tracks the PCE price indexes for its 2% inflation target.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)