Monday, August 4, 2008

U.S. Spending Rises; Prices Jump the Most Since 2005

The biggest increase in prices in almost three years eroded consumers' buying power in June, diminishing the boost from the government's tax rebates.

Consumer inflation climbed 0.8 percent, the most since September 2005, the Commerce Department said today in Washington. Spending increased 0.6 percent after a 0.8 percent gain in May.

The tax rebates from the government's stimulus plan will provide only a temporary boost for Americans in the face of $4-a- gallon gasoline, tumbling home prices and mounting job losses. The Federal Reserve is projected to hold interest rates unchanged tomorrow as the risks of both faster inflation and slower growth mount.

``There is a bit more inflation pressure than many people anticipated,'' said Kevin Logan, a senior market economist at Dresdner Kleinwort in New York, who correctly forecast the gain in spending. ``Inflation pressure is more widespread and that has to be some concern for the Fed. The tax cuts have helped maintain spending, but it's likely to drop off pretty dramatically in the fourth quarter.''

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