Washington: US consumer spending fell in August for the first time in seven months while inflation showed signs of accelerating, mixed signals that could keep the Federal Reserve cautious about raising interest rates.

The Commerce department said on Friday that consumer spending, which accounts for more than two-thirds of US economic activity, fell 0.1% last month after accounting for inflation.

Analysts polled by Reuters had expected a 0.1% gain.

“Consumers took a breather in August," said Chris Christopher of IHS Global Insight.

Fed chair Janet Yellen said last week she expected the US central bank would raise rates once later this year to keep the economy from eventually overheating.

Prices for fed funds futures suggest investors see almost no chance of a hike at the Fed’s next policy meeting in early November and roughly even odds of an increase at its mid-December meeting, according to CME Group.

The dollar was little changed against a basket of currencies while US stock prices were trading higher.

Consumer spending, which has been robust in recent months, partially offset the drag from weak business investment and falling inventories in the second quarter when the economy expanded at a lackluster 1.4% annual rate.

Economists said overall economic growth could still accelerate in the current quarter even with August’s slight decline in consumer spending.

The Atlanta Fed said growth appeared on track to accelerate to a 2.4% annual rate in the third quarter, according to its closely watched GDPNow forecasting model. It had forecast growth of 2.8% for the period earlier this week.

A tightening labour market appears to be pushing up wages and could fuel higher levels of spending in the future. Personal income rose 0.2% in August, in line with expectations.

Consumer prices also rose about as much expected in August, with the price index excluding food and energy increasing 0.2% from the prior month. That left inflation excluding food and energy at 1.7% in the 12 months through August, up a tenth of a percentage point from the prior month and closer to the Fed’s 2% inflation target. Reuters