US consumer spending increased more than expected in April, a further sign that economic growth was regaining momentum early in the second quarter, while inflation continued to rise steadily.\r\nOther data yesterday showed a bigger-than-expected drop in the number of Americans filing applications for unemployment benefits last week.\r\nModerately rising inflation and a tightening labour market bolster expectations that the Federal Reserve will raise interest rates next month.\r\nConsumer spending, which accounts for more than two-thirds of US economic activity, jumped 0.6% last month, the biggest gain in five months, the Commerce Department said.\r\nThat followed a 0.5% increase in March.\r\nEconomists polled by Reuters had forecast consumer spending advancing 0.4%. Spending was boosted by purchases of gasoline and other energy products.\r\nNon-durable goods purchases increased 0.9%. There were also increases in purchases of long-lasting goods.\r\nOutlays on services rose 0.5%, lifted by demand for household utilities.\r\nPrices continued to gradually rise last month.\r\nThe personal consumption expenditures (PCE) price index excluding the volatile food and energy components increased 0.2% for the third straight month.\r\nThat left the year-on-year increase in the so-called core PCE price index at 1.8%. The core PCE index is the Fed\u2019s preferred inflation measure.\r\nThe US central bank has a 2% inflation target.\r\nEconomists expect the annual core PCE price index will breach the Fed\u2019s target in the coming months.\r\nThe Fed increased borrowing costs in March and has forecast at least two more rate hikes for this year.\r\nUS Treasury yields slipped after the data.\r\nUS stock index futures were largely unchanged while the dollar was trading lower against a basket of currencies.\r\nThe moderate inflation also helped support consumer spending last month.\r\nWhen adjusted for inflation, consumer spending rose 0.4% in April after increasing 0.5% in the prior month.\r\nThat suggests an acceleration in consumer spending after it grew at a 1.0% annualised rate in the first quarter, the slowest pace in nearly five years.\r\nThe solid consumer spending added to data on trade and industrial production that have left economists anticipating a pickup in economic growth in the second quarter. Gross domestic product estimates for the April-June period are above a 3.0% rate.\r\nThe economy grew at a 2.2% pace in the first quarter.\r\nHouseholds dipped into their savings to fund purchases last month, with income growth remaining sluggish.\r\nPersonal income rose 0.3% after a gain of 0.2% in March.\r\nWages increased 0.4%. Savings fell to $419.6bn last month from $445.7bn in March.\r\nBut with the labour market rapidly tightening, there is hope that wage growth will gain steam.\r\nIn a separate report yesterday, the Labour Department said initial claims for state unemployment benefits dropped 13,000 to a seasonally adjusted 221,000 for the week ended May 26.\r\nEconomists polled by Reuters had forecast claims falling to 228,000 in the latest week.\r\nThe labour market is viewed as being close to or at full employment.\r\nThe jobless rate is near a 17-1\/2-year low of 3.9%, within striking distance of the Fed\u2019s forecast of 3.8% by the end of this year.\r\nLabour market strength is likely to be underscored by May\u2019s employment report, which is scheduled for release on Friday.\r\nAccording to a Reuters survey of economists, non-farm payrolls probably increased by 188,000 jobs after rising by 164,000 jobs in April.\r\nThe Fed\u2019s latest Beige Book report of anecdotal information on business activity collected from contacts nationwide showed labour market conditions remained tight across the country in late April and early May.\r\nThe Fed said contacts continued to report difficulty filling positions across skill levels.\r\nThere were notable shortages of truck drivers, sales personnel, carpenters, electricians, painters, and information technology professionals, the US central bank said in its report published on Wednesday.