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Consumer spending rises, but inflation muted

A woman walks through a shopping mall in San Francisco, California January 5, 2012. REUTERS/Robert Galbraith

WASHINGTON (Reuters) - U.S. consumer spending rose in October, but still benign inflation pressures offered a cautionary note for the Federal Reserve as it weighs the future of its bond-buying program.

The Commerce Department said on Friday consumer spending increased 0.3 percent after rising 0.2 percent in September.

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 October.

When adjusted for inflation, consumer spending increased 0.3 percent in October, the largest advance since March, after gaining 0.1 percent in September.

That suggested a pick-up in consumer spending after notching its slowest pace in almost four years in the third quarter.

However, inflation measures mostly retreated in October, which could worry some Fed officials. A price index for consumer spending was flat, having risen by 0.1 percent for three straight months.

Over the past 12 months, prices rose 0.7 percent, the smallest increase since October 2009. The index had increased 0.9 percent in September.

Excluding food and energy, the price index for consumer spending rose 0.1 percent, rising by the same margin for a fourth straight month. Core prices were up 1.1 percent from a year ago, after rising 1.2 percent in September.

Both inflation measures continue to trend below the Fed's 2 percent target, which 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 October, income fell 0.1 percent, the first decline since January, after rising 0.5 percent in September. With spending outpacing income growth, the saving rate - the percentage of disposable income households are socking away - fell to 4.8 percent.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)