* Consumer spending increases 0.3 percent in October
* Core PCE price index rises 0.2 percent; up 1.4 percent y/y
* Income gains 0.4 percent; savings increase to $457.3 bln
WASHINGTON, Nov 30 (Reuters) - U.S. consumer spending slowed in October as the hurricane-related boost to motor vehicle purchases faded, but a sustained increase in underlying price pressures suggested that a recent disinflationary trend had probably run its course.
Other data on Thursday showed a second straight weekly drop in first-time applications for unemployment benefits, pointing to a further tightening in labor market conditions that could soon generate faster wage growth and drive inflation higher.
The reports strengthened expectations that the Federal Reserve will raise interest rates next month. The U.S. central bank has increased borrowing costs twice this year.
The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.3 percent last month after surging 0.9 percent in September. Spending in September recorded its largest gain since August 2009 and was buoyed by some drivers in Texas and Florida replacing automobiles destroyed when Hurricanes Harvey and Irma slammed the states in late August and early September.
Last month's increase in consumer spending was in line with economists' expectations. Spending on long-lasting goods like autos fell 0.1 percent last month after surging 2.9 percent in September. Spending on nondurable goods such as prescription drugs and recreational items rose 0.2 percent.
Outlays on services increased 0.3 percent amid a rise in airline tickets for foreign travel and communication services.
Though overall inflation subsided as disruptions to the supply chain following the hurricanes eased, underlying price pressures increased again at a steady clip in October.
The Federal Reserve's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 0.2 percent in October after a similar gain in September. The so-called core PCE increased 1.4 percent in the 12 months through October, matching September's rise.
The core PCE has undershot the Fed's 2 percent target for nearly 5-1/2 years. Fed Chair Janet Yellen told lawmakers on Wednesday that she believed the recent weak inflation readings likely reflected "transitory factors." Yellen acknowledged the low inflation rates "could reflect something more persistent."
The dollar was little changed against a basket of currencies after the data, while prices for U.S. Treasuries fell.
With underlying inflation rising last month, the so-called real consumer spending edged up 0.1 percent after increasing 0.5 percent in September.
That will probably do little to change economists' expectations of solid consumer spending growth in the fourth quarter because September's strong gain put consumption on a higher growth trajectory.
Consumer spending grew at a 2.3 percent annualized rate in the third quarter, slowing from the April-June quarter's brisk 3.3 percent pace. Spending is, however, coming at the expense of savings as income growth remains moderate.
Personal income rose 0.4 percent last month after advancing by the same margin in September. Wages rose 0.3 percent last month. Savings increased to $457.3 billion in October from $429.9 billion in the prior month, which was the lowest level since August 2008.
The saving rate increased to 3.2 percent after falling to 3.0 percent in September, which was lowest since December 2007. There are expectations that wage growth will accelerate as the labor market tightens further.
In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 238,000 for the week ended Nov. 25.
Last week marked the 143rd consecutive week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was smaller.
The labor market is near full employment, with the jobless rate at a 17-year low of 4.1 percent.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)