WASHINGTON, June 30 (Reuters) - U.S. consumer spending rose modestly in May and inflation cooled, pointing to a slow-but-steady economic expansion that could still lead the Federal Reserve to raise interest rates by the end of the year.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.1 percent last month, the Commerce Department said on Friday. Consumer prices excluding food and energy rose 1.4 percent on a yearly basis, compared to a 1.5 percent gain in April.
Prices of U.S. Treasuries pared losses and U.S. stock index futures extended gains after the data. The dollar dipped slightly against a basket of currencies.
Some Fed policymakers are worried that inflation may fall further below the central bank's 2 percent target, but Fed Chair Janet Yellen said earlier this month that inflation would likely be soft in the coming months due to temporary factors.
Solid consumer spending is supporting the outlook for faster inflation and continued economic growth. The slower spending growth in May followed two monthly increases of 0.4 percent, which suggests economic growth is on track to accelerate in the second quarter after a meager expansion in the first three months of the year.
The personal consumption expenditures (PCE) price index fell 0.1 percent in May from April, dragged lower by drops in prices for consumer goods and energy. When food and energy were excluded, the index was up 0.1 percent.
The 12-month reading for the so-called core inflation has been slowing since March.
The slowdown in inflation has boosted consumer spending power. After-tax personal income adjusted for inflation rose 0.6 percent in May, the largest gain since April 2015. (Reporting by Jason Lange; Editing by Paul Simao)