US inflation continued to dip in June as spending on fuel decreased due to falling oil prices, while a drop in personal income accounted for lower household spending.
The US Department of Commerce's figures on personal consumption expenditure (PCE) showed lower levels of disposable income depressed consumption growth.
June's PCE price index rose at 1.4%, down from 1.5% in May, but beat expectations of a fall to 1.3%. The figure for May was revised up from 1.4%.
Core PCE, which excludes energy and food prices, rose by an annual 1.5% in June, matching May's number.
While overall consumer spending rose 0.1% on increased demand for services in June, declining spend on durable and non-durable goods had the biggest negative impact.
Spending on fuel, particularly gasoline, was the biggest contributing factor behind the decline in goods as oil prices remained below $50 a barrel.
PCE is the measure of inflation used by the Federal Reserve when it assesses the impact of price stability on economic growth at its monetary policy meetings.
At 1.4%, the rate of inflation as measured by the PCE index remained well below the Fed's target rate of 2% that it believes is consistent with long-term trend growth.
A growing number of economists have expressed doubts about the need for a further two interest rate increases this year, which was on the Fed's timetable when 2017 began.
"The softness of core inflation in the US recently prompted us to lower our forecasts for the federal funds rate," said John Higgins at Capital Economics. "We now expect only one more quarter-point rate hike this year rather than two."
James Knightley, chief international economist at ING said: "A 10% fall in the dollar since January may start to generate some inflation, but with wage growth remaining lacklustre the market continues to doubt the prospect of meaningful rate rises from the Federal Reserve."
Purchasing manager index (PMI)
The latest survey data into US manufacturing found that purchasing managers remained upbeat about the prospects for expanding business activity in the coming months in July's report by the Institute for Supply Management (ISM).
Although the ISM's PMI index slipped to 56.3 in July from 57.8 in June, US supply executives reported healthy levels of new order growth and rising production and employment – abliet at a slightly slower pace than in June.
IHS Markit's measure of US PMI showed similar levels of growth, with its index rising to a four month high of 53.3 in July from 52 in June.
Markit's Chris Williamson said: "IHS Markit expects GDP growth to accelerate to a near 3% annualised rate in the third quarter, fuelled by gains in consumer spending and business investment, which should benefit manufacturing."