Consumer spending posted solid growth in August; inflation still low

Consumers spent at a solid pace in August even though income growth slipped a bit, while inflation remained low, the Commerce Department said Monday.

Spending increased 0.4% from the previous month, better than economists had forecast. The pace of growth matched that of July, which was revised up from an initial estimate of 0.3%.

Personal income grew at a solid 0.3% pace in August, but was down from an upwardly revised 0.5% increase the previous month that was the best since last year.

“The world financial markets were in retreat and scary China economic growth stories filled the media skies in search of an audience, but the consumer did not go into hibernation; they headed to the mall to shop till they dropped in August,” said Chris Rupkey, chief financial economist at Union Bank in New York.

He said the “rock-solid performance” by consumers should help convince Federal Reserve policymakers the economy is strong enough to raise a key interest rate for the first time in nearly a decade.

Fed officials recently decided against a rate hike out of concern the financial market turmoil that began in late August was a threat to the U.S. economy. They opted to wait until at least October so they could review updated economic data.

Fed Chairwoman Janet L. Yellen said Thursday that she and most of her colleagues expected to increase the rate this year. But they remain concerned that annual inflation is running well below the central bank’s target of 2%.

Monday’s report showed inflation remained low.

The price index for personal consumption expenditures rose less than 0.1% in August following a 0.1% increase the previous month.

For the 12 months ended Aug. 31, prices increased just 0.3%.

Low oil prices have helped keep inflation down. Excluding volatile energy and food costs, prices increased 1.3% for the 12 months ended Aug. 31, up from a 1.2% annual pace through the end of July.