Consumer spending hit by high energy, food prices

Consumer spending increased in April, but the gains were largely negated by rising prices for energy and food, while after-tax incomes remained flat. 

Spending, which represents 70 percent of the economy, rose 0.4 percent last month, the 10th straight month of increases, a reflection of higher prices at the gas pump and in stores for food, the Commerce Department reported Friday. 

When adjusted for the increase in prices, spending was up only 0.1 percent, slightly below analysts' expectations. 

Incomes rose 0.4 percent, but after being adjusted for inflation, they were flat for a second straight month.

Inflation remained high last month on rising food and gas prices, with the personal consumption expenditures price (PCE) index rising 0.3 percent after an increase of 0.4 percent in March.

The index is up 2.2 percent since April of last year. 

The core PCE index, which excludes food and energy, increased 0.2 percent after rising 0.1 percent in March.

The Federal Reserve closely watches the core index for signs of long-term inflationary pressures. The index has increased 1.0 percent in 12 months, through April — well within levels that would cause the Fed concern. 

Spending could be helped out in May, as fuel costs have been dropping throughout the month, down from an average of about $4 a gallon to $3.81 on May 26, according to AAA.

Economists have expressed concerns that higher gas and food prices are sapping consumers' ability to spend more freely on other items, which would lead to a faster pace of economic growth. 

The Commerce Department reported Thursday that the overall economy grew at an annual rate of just 1.8 percent in the first three months of the year, hampered by price concerns that cut into consumer spending, down from the 3.1 percent growth in the October-December period last year. 

The savings rate was 4.9 percent, the same as in March and the lowest rate since October 2008, as the nation dealt with the financial crisis. 

During the economic downturn, consumers paid off their credit cards and saved more. The savings rate hit its peak of 8.2 percent in May 2009 after averaging around 2 percent before the downturn.