US consumer spending declines

WASHINGTON, Feb 28 (Reuters): US consumer spending unexpectedly fell in January while the annual increase in inflation slowed, supporting financial market expectations that the Federal Reserve would resume cutting interest rates in June.

But the moderation in annual inflation, which partly reflected last year's high readings dropping out of the calculation, is unlikely to be sustained as President Donald Trump's administration ratchets up tariffs on imports, which economists warned would raise prices. Consumers' one-year inflation expectations soared in February.

"The good news is consumer inflation broke the curse of the January effect," said Christopher Rupkey, chief economist at FWDBONDS.

"The bad news is consumers are scrambling to process the winds of change coming out of Washington and have apparently decided to sit it out and wait."

Consumer spending, which accounts for more than two-thirds of US economic activity, dropped 0.2% last month after an upwardly revised 0.8% increase in December, the Commerce Department's Bureau of Economic Analysis said on Friday.

Economists polled by Reuters had forecast consumer spending gaining 0.1% after a previously reported 0.7% surge in December, when outlays were boosted by pre-emptive buying in anticipation of tariffs.