US consumer spending rose in August by the most in six months as households stretched to pay for higher gasoline prices, according to a government report yesterday that pointed to lackluster economic growth in the third quarter.

Relying on consumers is not the exact position we want to be in right now

The Commerce Department said consumer spending increased 0.5 per cent after an unrevised 0.4 per cent gain in July. When adjusted for inflation, spending edged up 0.1 per cent after increasing 0.4 per cent in July.

Consumer spending accounts for about 70 per cent of US economic activity and the second straight monthly increase mostly reflected higher gasoline prices, which rose 28.2c per gallon last month, though automobile purchases also helped.

“With other sectors of the economy slowing down, relying on consumers is not the exact position we want to be in right now when incomes are slowing sharply,” said Jacob Oubina, senior US economist at RBC Capital Markets in New York.

The US dollar fell slightly against the euro and the yen after the data. Major US stock index futures edged lower in early trading, while the 30-year Treasury bond price rose.

Spending on non-durable goods jumped 1.7 per cent in August after increasing 0.8 per cent the previous month. Household spending on services rose a modest 0.2 per cent compared to 0.3 per cent in July.

With the inflation adjusted spending barely rising last month, growth in real consumer spending is unlikely to improve much this quarter from the tepid 1.5 per cent annual pace recorded in the April-June period. Slower consumer spending and a drop in farm inventories due to a severe drought in the Midwest held gross domestic product growth to a 1.3 per cent pace in the second quarter, a step down from two per cent in the first three months of the year.

With gasoline prices rising, inflation pressures picked up a bit last month. A price index for personal consumer expenditures increased 0.4 per cent, the largest gain since March last year, after being flat in July.

In the 12 months through August, the PCE price index rose 1.5 per cent after increasing 1.3 per cent in July.

However, a measure which strips out food and energy costs, rose only 0.1 per cent from July. The index advanced by the same margin in July. In the 12 months to August, the core PCE index, increased 1.6 per cent – matching July’s increase.

The Federal Reserve has a two per cent inflation target and the still-moderate pace of inflation should give the US central bank comfort to maintain its accommodative monetary policy stance for a while as it seeks to spur job growth and domestic demand.

Income nudged up 0.1 per cent but was eroded by the rise in inflation. The amount of income at the disposal of households after accounting for inflation and taxes fell 0.3 per cent after ticking up 0.1 per cent in July. That was the first decline since November.

With spending outstripping income growth, the saving rate slipped 3.7 per cent last month from 4.1 per cent in July.