In line with wage and salary increases the previous month, U.S. consumer spending saw its biggest increase in four months in April, the Commerce Department said Tuesday. This increase was the largest since December.
Consumer spending, which accounts for over two-thirds of U.S. economic activity, increased 0.4 percent. In April, households spent more on both goods and services.
The rebound in the second quarter follows the weakest gains January-March since 2009, reports Bloomberg. Weak consumer spending restricted gross domestic product growth to 1.2 percent annual rate. Estimates for the second quarter range between 2 and 3 percent.
The personal consumption expenditures price index bounced back to 0.2 percent after falling to 0.1 percent in March.
The better than expected consumer spending may cause the Fed to increase interest rates, analysts speculated.
“Minutes of the Fed’s May 2-3 policy meeting, which were published last week, showed that while policymakers agreed they should hold off hiking rates until there was evidence the growth slowdown was transitory, ‘most participants’ believed ‘it would soon be appropriate’ to raise borrowing costs,” Reuters reported.
The U.S. central bank raised rates by 25 basis points in March and business analysts believe policy tightening will continue, buoyed by steadily rising inflation.
That inflation is working against consumer spending and income growth. Real consumer spending, when adjusted for inflation, rose 0.2 percent last month after advancing 0.5 percent in March, reports Reuters. Household disposable income, after adjusting for inflation, rose at the same rate.