U.S. consumer spending rose less than forecast in May as outlays on services fell and Americans saved more of their incomes. Inflation topped the Federal Reserve’s goal by more than expected.

Purchases rose 0.2 percent from April after a 0.5 percent advance that was less than previously estimated, Commerce Department figures showed Friday. The Bloomberg survey median called for a 0.4 percent gain. Incomes advanced 0.4 percent, matching forecasts, and the Fed’s preferred price gauge rose 2.3 percent from a year earlier, the most in six years and slightly above projections.

Adjusted for inflation, consumer spending was little changed in May, suggesting households may be taking a breather even as a solid labor market, elevated confidence and lower taxes point to an acceleration in second-quarter consumption and economic growth. At the same time, the pickup in inflation — including a core measure that’s effectively at the Fed’s 2 percent goal — may reinforce projections for two more interest-rate increases this year.

“The tone of the report is a little weaker momentum in spending than we’d anticipated,” said Michael Gapen, chief U.S. economist at Barclays Plc in New York. Even so, “the overall trend in personal consumption is still consistent with acceleration” this quarter and a continuing boost from lower taxes, he said.

The Fed’s preferred headline inflation gauge — tied to consumption — rose 0.2 percent from April, the second straight such gain. Excluding food and energy, so-called core prices also rose 0.2 percent, matching estimates, while the annual gain of about 2 percent was higher than the median estimate for 1.9 percent. It was the first time in six years the core index registered a 2 percent gain.

While the latest price data are encouraging for the Fed, inflation expectations have stayed subdued — a concern recently expressed by Fed Chairman Jerome Powell. Policy makers have said they expect to keep raising interest rates gradually as inflation continues to perk up. The unemployment rate is set to fall further below their goal, signaling upward pressures on wages and prices.

The progress on prices “is a good thing, though not too much of a good thing” for policy makers, said Gapen, who accurately projected the annual gain in both the headline and core inflation gauges. Higher energy costs are boosting the headline results, and even with a firmer core index, “there’s still no real sign that inflation is breaking out,” he said.

The central bank officially targets inflation of 2 percent including all items, though it looks to the core measure as a better underlying indicator of prices. Headline inflation may be getting a temporary jolt from higher fuel costs.

Real Spending

Real consumer spending, which is adjusted for price changes, was little changed in May — the weakest showing since a decline in February — after a 0.3 percent gain in April. Meanwhile, real disposable income, or earnings adjusted for taxes and inflation, was up 0.2 percent after a 0.1 percent gain. The saving rate increased to 3.2 percent from 3 percent.

What Our Economists Say

Consumer spending entered the second quarter with a full head of steam, lifting prospects for a blowout quarter of GDP growth. To be sure, a strong showing is in order, but the overall profile of spending shows some signs of deceleration, tilting the odds back in favor of a 3- not a 4-handle on real GDP growth.– Carl Riccadonna and Niraj Shah, Bloomberg Economics Read more for the full reaction note from Bloomberg Economics.Household outlays on services, adjusted for inflation, fell 0.2 percent after a 0.3 percent gain in the prior month. Spending for household utilities was the biggest contributor to the decrease in services spending, according to the Commerce Department. Real spending on goods was up 0.3 percent.

Wages and salaries rose 0.3 percent in May for a second month, the data showed. Workers’ paychecks are yet to show a sustained acceleration consistent with strong hiring and low unemployment.

While tax cuts are bolstering consumer spending and business investment, tariff threats and other trade concerns are causing gyrations in the stock market in addition to posing risks to corporate and household sentiment, which remains elevated so far.

Most analysts see the economy expanding at an annualized pace of at least 3 percent in the second quarter, up from 2 percent in the prior three months. Consumer spending grew at a 0.9 percent rate in the January-through-March period, revised data showed Thursday.