US consumer spending, core PCE inflation firmer before Iran war

WASHINGTON, Mar 13 (Reuters): US consumer spending rose solidly in January and underlying inflation maintained a strong pace of increase, which together with the dragging war in the Middle East strengthened economists' views that the Federal Reserve would not resume cutting interest rates before September.

Despite the slightly larger-than-expected increase in spending, other data from the Commerce Department on Friday were downbeat. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, were unchanged in January and economic growth slowed at a sharper pace than initially thought in the fourth quarter.

Following in the wake of unexpected job losses in February, the reports put stagflation on the radar, complicating the US central bank's job.

"We now see a steep rise in inflation and weaker economic activity in the second quarter due to the spike in gasoline and energy prices, weaker exports as the rest of the world reels from the disruptions, and an erosion in business confidence," said Kathy Bostjancic, chief economist at Nationwide.

Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.4 per cent in January after increasing by the same margin in December, the Commerce Department's Bureau of Economic Analysis said.