U.S. consumer spending increased by the most in seven months in October, but underlying price pressures slowed, with an inflation measure tracked by the Federal Reserve recording its smallest annual increase since February.
The Commerce Department said on Thursday consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 0.6 percent last month as households spent more on prescription medication and utilities.
Data for September was revised down to show spending rising 0.2 percent instead of the previously reported 0.4 percent gain.
Economists polled by Reuters had forecast consumer spending increasing 0.4 percent in October. When adjusted for inflation, consumer spending advanced 0.4 percent, also the biggest gain in seven months and pointing to a solid pace of consumption at the beginning of the fourth quarter.
Despite the strong consumer spending, there are indications that economic growth is slowing. Data this month suggested a moderation in business spending on equipment, a deterioration in the trade deficit as well as further weakness in the housing market. Growth estimates for the fourth quarter are currently around a 2.5 percent annualized rate. The economy grew at a 3.5 percent pace in the July-September quarter.
In October, spending on goods surged 0.5 percent after gaining 0.1 percent in September. Outlays on services shot up 0.7 percent after rising 0.3 percent the prior month.
There was a slowdown in price gains last month. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components edged up 0.1 percent after increasing 0.2 percent in September.
That lowered the year-on-year increase in the so-called core PCE price index to 1.8 percent, the lowest reading since February, from 1.9 percent in September. The core PCE index is the Fed's preferred inflation measure.
It hit the U.S. central bank's 2 percent inflation target in March for the first time since April 2012.
The moderation in inflation will probably not change expectations that the Fed will raise interest rates next month for the fourth time this year.
Fed Chair Jerome Powell on Wednesday appeared to signal the central bank is nearing an end to its interest-rate hikes, saying its policy rate was now "just below" a level that neither brakes nor boosts a healthy economy.
Last month, personal income increased 0.5 percent, the largest gain since January, after rising 0.2 percent in September. Wages rose 0.3 percent in October. Savings slipped to $967.8 billion last month from $976.9 billion in September.