*

Personal consumption expenditures price index rises 0.3%

*

Goods prices post largest gain since January

*

Core PCE inflation increases 0.3%; up 2.8% year-on-year

*

Consumer spending gains 0.3%; saving rate steady at 4.5%

*

Weekly jobless claims increase 1,000 to 218,000

By Lucia Mutikani

WASHINGTON, July 31 (Reuters) - U.S. inflation increased

in June as tariffs boosted prices for imported goods like

household furniture and recreation products, supporting views

that price pressures would pick up in the second half of the

year and delay the Federal Reserve from resuming cutting

interest rates until at least October.

The report from the Commerce Department on Thursday showed

goods prices last month posting their biggest gain since

January, with also solid rises in the costs of clothing and

footwear. The U.S. central bank on Wednesday left its benchmark

interest rate in the 4.25%-4.50% range and Fed Chair Jerome

Powell's comments after the decision undercut confidence the

central bank would resume policy easing in September as had been

widely anticipated by financial markets and some economists.

"The Fed is unlikely to welcome the inflation dynamics

currently taking hold. Rather than converging toward target,

inflation is now clearly diverging from it," said Olu Sonola,

head of U.S. economic research, Fitch Ratings. "This trajectory

is likely to complicate current expectations for a rate cut in

September or October."

The personal consumption expenditures (PCE) price index rose

0.3% last month after an upwardly revised 0.2% gain in May, the

Commerce Department's Bureau of Economic Analysis said.

Economists polled by Reuters had forecast the PCE price index

climbing 0.3% following a previously reported 0.1% rise in May.

Prices for furnishings and durable household equipment

jumped 1.3%, the biggest gain since March 2022, after increasing

0.6% in May. Recreational goods and vehicles prices shot up

0.9%, the most since February 2024, after being unchanged in

May. Prices for clothing and footwear rose 0.4%.

Outside the tariff-sensitive goods, prices for gasoline

and other energy products rebounded 0.9% after falling for four

consecutive months. Services prices rose 0.2% for a fourth

straight month. In the 12 months through June, the PCE price

index advanced 2.6% after increasing 2.4% in May.

The data was included in the advance gross domestic

product report for the second quarter published on Wednesday,

which showed inflation cooling, though remaining above the Fed's

2% target. Economists said businesses were still selling

inventory accumulated before President Donald Trump's sweeping

import duties came into effect.

They expected a broad increase in goods prices in the second

half. Procter & Gamble ( PG ) said this week it would raise

prices on some products in the U.S. to offset tariff costs.

The U.S. central bank tracks the PCE price measures for

monetary policy. Excluding the volatile food and energy

components, the PCE price index increased 0.3% last month after

rising 0.2% in May. In addition to higher goods prices, the

so-called core PCE inflation was lifted by rising costs for

healthcare as well as financial services and insurance.

In the 12 months through June, core inflation advanced 2.8%

after rising by the same margin in May.

U.S. stocks opened higher. The dollar was trading higher

against a basket of currencies. U.S. Treasury yields fell.

CONSUMER SPENDING STEADY

The BEA also reported that consumer spending, which accounts

for more than two-thirds of economic activity, rose 0.3% in June

after being unchanged in May. The data was also included in the

advance GDP report, which showed consumer spending growing at a

1.4% annualized rate after almost stalling in the first quarter.

In the second quarter, economic growth rebounded at a 3.0%

rate, boosted by a sharp reduction in the trade deficit because

of fewer imports relative to the record surge in the

January-March quarter. The economy contracted at a 0.5% pace in

the first three months of the year.

Consumer spending remains supported by a stable labor

market, with other data from the Labor Department showing

initial claims for state unemployment benefits rose 1,000 to a

seasonally adjusted 218,000 for the week ended July 26.

But a reluctance by employers to increase headcount amid

uncertainty over where tariff levels will eventually settle is

making it harder for those who lose their jobs to find new

opportunities, which could hamper future spending.

The number of people receiving benefits after an initial

week of aid, a proxy for hiring, was unchanged at a lofty

seasonally adjusted 1.946 million during the week ending July

19, the claims report showed.

The government's closely watched employment report on Friday

is expected to show the unemployment rate rising to 4.2% in July

from 4.1% in June, according to a Reuters survey of economists.

Economists expect the combination of pressure from tariffs

and a slowing labor market will put a brake on consumer spending

in the third quarter. Slow growth is likely already in the works

as inflation-adjusted consumer spending edged up 0.1% in June

after declining 0.2% in May. Precautionary saving could also

curb spending. The saving rate was unchanged at 4.5% in June,

while personal income rebounded 0.3%.

"The June numbers and revisions to previous data set the

economy up for fairly weak consumer spending in the third

quarter," said Oren Klachkin, financial markets economist at

Nationwide. "With wage growth staying contained, we expect the

consumer will continue to look for discounts through the rest of

the year."