U.S. consumer spending increased more than expected in June as Americans paid more for goods and services, with monthly inflation surging by the most since 2005.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 1.1% last month, the Commerce Department said on Friday. Data for May was revised up to show outlays gaining 0.3% instead of 0.2% as previously reported.
Economists polled by Reuters had forecast consumer spending would accelerate by 0.9%.
The data was included in the advance gross domestic product report for the second quarter, which was published on Thursday. That report showed inflation-adjusted consumer spending increased at its slowest pace in two years amid declines in purchases of goods, particularly food, because of higher prices.
Gross domestic product contracted at a 0.9% annualized rate last quarter after declining at a 1.6% pace in the first quarter.
Inflation heated up in June. The personal consumption expenditures (PCE) price index jumped 1.0% last month. That was the largest increase since September 2005 and followed a 0.6% gain in May. In the 12 months through June, the PCE price index advanced 6.8%, the largest increase since January 1982. The PCE price index rose 6.3% year-on-year in May.
Excluding the volatile food and energy components, the PCE price index shot up 0.6% after climbing 0.3% in May. The so-called core PCE price index increased 4.8% on a year-on-year basis in June after rising 4.7% in May.
The Federal Reserve on Wednesday raised its policy rate by another three-quarters of a percentage point. It has now hiked that rate by 225 basis points since March.