US consumer spending jumped last month but inflation accounted for half of the gain, the US government said today.
Personal spending was up 1.0 per cent in May, the Commerce Department said, beating Wall Street forecasts for a 0.8 per cent gain and posting the biggest advance since October 2001's 2.4 per cent rise.
April's gain in spending was revised down slightly to 0.2 per cent from the originally reported 0.3 per cent rise.
US Treasury prices eased on the data and the euro slipped slightly against the dollar as dealers bet the Fed may signal it will raise interest rates faster than expected after the Federal Open Market Committee meeting.
But analysts were less alarmed by the data. "The numbers show that the US economy is doing very well and inflationary pressures are slowly building," said Mr Peter Frank, senior foreign exchange strategist at ABN Amro.
The Fed is expected to increase interest rates for the first time in four years, from their 1958-low of 1 per cent, at the end of a two-day gathering which starts tomorrow.
Fed officials have said they can tighten monetary policy at a measured pace, but also want to assure markets that they will keep US inflation under control.