WASHINGTON (Reuters) – U.S. consumer spending rose as households stretched to cover the higher cost for food and gasoline as inflation posted its biggest year-on-year rise in 10 months.
The Commerce Department said on Friday consumer spending, adjusted for inflation, edged up 0.2 percent last month after rising 0.5 percent in February.
Nominal spending increased 0.6 percent for a ninth straight month of gains, after advancing 0.9 percent in February.
Economists had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.5 percent.
"The story in the first quarter was higher gas prices are forcing people to spend more at the expense of other items," said Christopher Low, chief economist at FTN Financial in New York. "The inflation burden increased in the quarter, things were progressively worse as you moved from January to March."
U.S. stock index futures maintained earlier gains after the report, while bond prices held their slight gains. The dollar was weaker versus the euro and yen.
The government reported on Thursday that consumer spending grew at a 2.7 percent annualized rate in the first quarter after a 4 percent increase in the final three months of 2010.
That contributed to economic growth slowing to a 1.8 percent rate in the first quarter after a 3.1 percent expansion in the last quarter of 2010.
The moderation in spending was not as sharp as economists had feared, suggesting that consumers were somewhat adapting to the high commodity prices, but could face a litmus test should gasoline prices shoot above $4 a gallon.
The national price for regular unleaded gasoline rose 3.5 cents to $3.88 in the week through Monday.
The Fed this week expressed confidence high energy prices would not spark broader inflation, with Chairman Ben Bernanke saying he did not believe gasoline prices would continue to rise at their recent pace.
High food and energy prices kept inflation elevated in March, with the personal consumption expenditures price (PCE) index up 0.4 percent after rising by the same margin in February. Compared to March last year, the index was up 1.8 percent - the largest increase since May - after rising 1.6 percent in February.
The core PCE index -- excluding food and energy - slowed to a 0.1 percent increase after rising 0.2 percent in February. The core index, which is closely watched by Federal Reserve officials, increased 0.9 percent in the 12 months through March.
The index rose 0.9 percent in February and the Fed would like to see it around 2 percent.
Spending was supported by incomes, which increased 0.5 percent last month after a 0.4 percent gain in February. The rise in incomes was a touch above economists' expectations for a 0.4 percent gain.
Savings edged up to $651.2 billion from $647.5 billion in February. The saving rate was unchanged at 5.5 percent.
Separately, wages rose at a 0.4 percent rate in the first quarter, a Labor Department report showed, after increasing by the same pace in the fourth quarter.
(Reporting by Lucia Mutikani, Additional reporting by Karen Brettell in New York; Editing by Andrea Ricci)