U.S. inflation retreats on soft consumer spending

[April 29, 2016]  WASHINGTON, April 29 (Reuters) - - U.S. inflation barely rose in March as consumer spending remained tepid, making it less likely that the Federal Reserve will be able to hike interest rates twice this year.

The Commerce Department said on Friday the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, edged up 0.1 percent last month after an upwardly revised 0.2 percent increase in February.

Last month's gain in the so-called PCE was in line with economists' expectations. In the 12 months through March the core PCE rose 1.6 percent after advancing 1.7 percent in February.

The core PCE is the Fed's preferred inflation measure and is running below the U.S. central bank's 2 percent target. The Fed said on Wednesday its policy-setting committee was continuing to "closely" monitor inflation.

The Fed left its benchmark overnight interest rate unchanged and suggested it was in no hurry to tighten monetary policy further. It hiked rates in December for the first time in nearly a decade.

Fed officials earlier this year forecast two more rate hikes for 2016. But market-based measures of Fed policy expectations are mostly leaning toward one rate increase this year.

Inflation is being restrained by a strong dollar and cheaper energy. A tightening labor market also has failed to generate strong wage gains, contributing to moderate consumption growth.

In March, consumer spending ticked up 0.1 percent after an upwardly revised 0.2 percent gain in February. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have risen 0.1 percent in February.

When adjusted for inflation, consumer spending was unchanged after increasing 0.3 percent in February. The consumer spending figures were included in the first-quarter gross domestic product report published on Thursday. The economy grew at a 0.5 percent annual rate in the January-March period, a sharp slowdown from the fourth quarter's 1.4 percent pace.

Consumer spending is expected to regain momentum as wages steadily increase. Personal income rose 0.4 percent in March after nudging up 0.1 percent in February. Savings jumped to $735.5 billion last month, the highest level since December 2012, from $696.4 billion in February.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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