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U.S. consumer spending tepid as households boost savings

Customers shop at Toys R Us in New York November 24, 2011. REUTERS/Eric Thayer
Customers shop at Toys R Us in New York November 24, 2011. REUTERS/Eric Thayer

WASHINGTON (Reuters) - U.S. consumer spending increased modestly in September as households boosted their savings and inflation remained benign, pointing to sluggish domestic demand.

The Commerce Department said on Friday consumer spending rose 0.2 percent after advancing 0.3 percent in August.

Economists polled by Reuters had expected consumer spending, which accounts for about 70 percent of U.S. economic activity, to gain 0.2 percent in September.

The data was included in Thursday's third-quarter gross domestic product report.

Inflation stayed muted in September, a potential source of concern for Federal Reserve officials. A price index for consumer spending nudged up 0.1 percent, rising by the same margin for three consecutive months.

Over the past 12 months, prices rose 0.9 percent, the smallest advance since April. The index had increased 1.1 percent in August.

Excluding food and energy, the price index for consumer spending also rose 0.1 percent for a third straight month. Core prices were up 1.2 percent from a year ago, after rising by the same margin in August.

Both inflation measures continue to trend below the Fed's 2 percent target. That, combined with the lackluster consumer spending, would argue against the U.S. central bank trimming the $85 billion in bond purchases it is making each month to keep interest rates low.

In September, income rose 0.5 percent after rising by the same margin in August. With spending lagging income growth, the saving rate - the percentage of disposable income households are socking away - rose to 4.9 percent. That was the highest since December last year.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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