US consumer spending up in July

Consumer spending accounts for two-thirds of the US economy

US consumer spending rose by the largest amount for six months in July, a sign that the slowdown in the economy may not be as severe as some fear.

The Commerce Department said that spending rose by 0.8% last month, the best figure since January, and double the 0.4% gain in June.

Yet separate figures from the department showed that while spending rose, inflation remains a problem.

Non-food, non-energy annual consumer price inflation hit 2.4% in July.

This is the largest figure in four years and above the US Federal Reserve's preferred range of 1% to 2%.

Balancing act

The latest official US figures come a day after the Commerce Department said the US economy grew at an annualised rate of 2.9% in the second quarter of 2006, well down on the 5.6% growth seen in the first quarter.

Taking all the figures into account, the Fed faces a delicate task in its aim of maintaining growth in the US economy while keeping inflationary pressures in check.

Earlier this month it voted to keep interest rates on hold at 5.25%, bringing to an end two years of rate rises.

The Fed said at the time that it believed that the rates of economic growth and inflation were now both slowing of their own accord.

Consumer spending figures are widely followed in the US as the measures accounts for two-thirds of the economy.