WASHINGTON, Aug 31 (Reuters) - U.S. consumer spending rose slightly less than expected in July and annual inflation increased at its slowest pace since late 2015, which could bolster expectations that the Federal Reserve will delay raising interest rates until December.
The Commerce Department said on Thursday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.3 percent last month after an upwardly revised 0.2 percent rise in June.
Economists polled by Reuters had forecast consumer spending rising 0.4 percent in July after a previously reported 0.1 percent gain in June.
The report still suggested the economy got off to a strong start in the third quarter after gross domestic product increased at a 3.0 percent annualized rate in the April-June period, the fastest in more than two years.
Growth in the second quarter was buoyed by robust consumer spending. Inflation continued to be muted last month.
The personal consumption expenditures (PCE) price index excluding food and energy edged up 0.1 percent in July after a similar gain in June. In the 12 months through July, the so-called core PCE price index increased 1.4 percent after advancing 1.5 percent in June. That was the smallest year-on-year increase since December 2015.
The core PCE is the Fed's preferred inflation measure. It has undershot the U.S. central bank's 2 percent target for the past five years.
The combination of moderate consumer spending and benign inflation supports the view that the Fed is unlikely to raise rates before its December policy meeting. The U.S. central bank has increased borrowing costs twice this year.
It is, however, expected to announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities next month.
When adjusted for inflation, consumer spending rose 0.2 percent in July.
Consumer spending was supported by a rebound in incomes. Personal income increased 0.4 percent last month after being unchanged in June. Wages and salaries advanced 0.5 percent. Savings fell to $510.2 billion in July from $515.7 billion in the prior month. (Reporting by Lucia Mutikani; Editing by Paul Simao)