US consumer spending rose in March as households stretched to cover higher costs for food and petrol, with inflation posting its biggest year-on-year rise in 10 months.

Despite the rising cost of living, consumers grew a bit optimistic about the economy this month and even dialed down their expectations for inflation over the next five to 10 years, another report showed yesterday, said a report in our sister publication, the Gulf Daily News.

Consumer spending rose 0.6 per cent for a ninth straight month of gains, after advancing 0.9 per cent in February, the Commerce Department said.

But prices rose a stiff 0.4 per cent leaving the spending that drives 70 per cent of the economy up just 0.2 per cent after adjusting for inflation.

The Thomson Reuters/University of Michigan's consumer sentiment index rose to 69.8 from 67.5 in March. The survey's one-year inflation expectation was unchanged at 4.6 per cent, but the five-to-10-year inflation outlook slipped to 2.9 per cent from 3.2 per cent in March.

A third report showed factory activity in the country's Midwest slowed this month, potentially indicating some cooling in manufacturing. The Institute for Supply Management-Chicago business barometer dropped to 67.6 in April from 70.6 in March. Economists had forecast an April reading of 68.5.

The government said on Thursday that consumer spending growth slowed to a 2.7 per cent annual rate in the first quarter after a 4 per cent rise in the final three months of 2010.

That gain, which took into account the spending data released yesterday, was a factor behind a slowing in overall economic growth to a 1.8 per cent pace at the start of this year from the 3.1 per cent expansion in the last quarter of 2010.

Consumers could be put to the test, however, if petrol prices shoot above $4 a gallon. The national price for regular unleaded petrol rose 3.5 cents to $3.88 in the week through Monday.

Consumer prices rose 0.4 per cent in March for a second straight month, according to an inflation gauge in the spending report. Over the past year, price have risen 1.8 per cent - the largest increase since May and an acceleration from the 1.6 per cent logged in the 12 months through February.

The core  PER CENTE index slowed to a 0.1 per cent increase after rising 0.2 per cent in February. Core prices have risen just 0.9 per cent over the past 12 months, just a touch above the all-time low of 0.7 per cent struck in December. – TradeArabia News Service