By Lucia Mutikani
WASHINGTON (Reuters) - U.S. consumer spending increased by the most in more than 9-1/2 years in March, but price pressures remained muted, with a key inflation measure posting its smallest annual gain in 14 months.
The surge in consumer spending reported by the Commerce Department on Monday sets a stronger base for growth in consumption heading into the second quarter after it slowed sharply in the first three months of the year. Tame inflation, however, supports the Federal Reserve's recent decision to suspend further interest rate increases this year.
Fed officials are scheduled to meet on Tuesday and Wednesday to assess the economy and deliberate on the future course of monetary policy. The U.S. central bank in March dropped forecasts for any interest rate increases this year, halting a three-year policy tightening campaign. The Fed raised borrowing costs four times in 2018.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged 0.9 percent as households stepped up purchases of motor vehicles and spent more on healthcare. Consumer spending edged up 0.1 percent in February. Data for January was revised up to show consumer spending rising 0.3 percent instead of the previously reported 0.1 percent gain.
The release of the February spending data was delayed by a five-week partial shutdown of the federal government that ended on Jan. 25. Economists polled by Reuters had forecast consumer spending jumping 0.7 percent in March.
When adjusted for inflation, consumer spending increased 0.7 percent in March. This so-called real consumer spending was unchanged in February. The data was included in last Friday's first-quarter gross domestic product report.
March's surge in real consumer spending suggested an acceleration in consumption was likely in the second quarter. Consumers spending increased at a 1.2 percent annualised rate in the first quarter, the slowest in a year. The overall economy grew at a 3.2 percent rate last quarter.
U.S. Treasury yields were little changed after the consumer spending and inflation data. The dollar held steady against a basket of currencies. U.S. stock index futures were trading slightly lower.
In March, spending on goods rebounded 1.7 percent, with outlays on long-lasting manufactured goods such as cars shooting up 2.3 percent. Spending on goods fell 0.5 percent in February. Outlays on services increased 0.5 percent last month, driven by healthcare spending, after rising 0.4 percent in February.
Inflation was benign, with the personal consumption expenditures (PCE) price index excluding the volatile food and energy components unchanged in March after edging up 0.1 percent in February. That lowered the year-on-year increase in the so-called core PCE price index to 1.6 percent, the smallest increase since January 2018, from 1.7 percent in February.
The core PCE index is the Fed's preferred inflation measure. It hit the central bank's 2 percent inflation target in March last year for the first time since April 2012.
In March, personal income ticked up 0.1 percent after rising 0.2 percent in February. Wages rose 0.4 percent in March after advancing 0.3 percent in the prior month.
Savings fell to $1.03 trillion (£797.21 billion) in March from $1.16 trillion in February. The saving rate dipped to 6.5 percent last month from 7.3 percent in February.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)