Wage rises spark US spending jump

Rising incomes allowed Americans to spend more in April

US consumer spending in April grew at its fastest rate for three months as US workers brought home more money.

Spending jumped 0.6% in April, its best performance since a 0.8% rise in January, the Commerce Department said.

A 0.5% increase in incomes - led by a 0.9% rise in wages, the biggest seen in a year - helped fuel the consumer rush.

Meanwhile core prices - which exclude volatile energy and food prices - rose 0.2% in April, pushing core annual inflation up to 2.1% from 2% in March.

Overall inflation rose 0.5% in the month, or 2.9% year-on-year, following the impact of rising crude oil prices.

Rates dilemma

The Fed has raised interest rates at its previous 16 meetings in an effort to keep inflation under control by limiting consumer activity and slowing borrowing. US rates now stand at a five-year high of 5%.

However, some commentators have voiced fears that if the Fed raises rates at its next meeting it could risk tipping the country into recession.

Consumer spending rose a mere 0.1% in April if energy costs are excluded.

As a result, analysts expect the central bank to adopt a "wait-and-see" approach on rates - examining new information on inflation and the economy as it comes in.

"It (the latest data) doesn't say, 'Yes, the Fed must tighten.' But it doesn't assure them the luxury of a pause," said William Sullivan, chief economist at JVB Financial Group.