WASHINGTON (Reuters) — US consumers, helped by bigger pay cheques and lower gasoline prices, boosted their spending last month, according to a government report that may counter fears of a sharp economic slowdown. The Commerce Department said yesterday that personal income rose by 0.5 percent in September, ahead of analysts’ forecasts for a 0.3 percent gain. The August figure revised upward to 0.4 percent.Taking out inflation and taxes, real disposable income rose at its fastest pace in a year in September at 0.8 percent, helping to pad consumer spending at a time when concerns are growing about the economic impact of the housing slump.

The growth in income coincided with falling gasoline prices, which pushed down headline consumer prices by 0.3 percent in September.

The report “was positive in almost every major dimension that is critical for the sustainability of the business expansion,” said Brian Bethune, US economist for Global Insight Inc. in Lexington, Massachusetts.

The report came just days after the government said third quarter gross domestic product rose a scant 1.6 percent in the third quarter, but it did not provide encouragement for investors hoping the Federal Reserve would cut interest rates soon.

US Treasury debt prices fell largely in reaction to comments yesterday from Richmond Federal Reserve Bank President Jeffrey Lacker that inflation was still too high. Stocks rose on a steep drop in oil prices and a brighter corporate profit picture.

The Commerce Department said personal spending rose 0.1 percent in September, slightly below analysts’ forecasts for 0.2 percent increase. But adjusted for inflation, consumption spending rose a solid 0.4 percent after a surprise fall of 0.1 percent in August.

Wages and salaries increased 0.5 percent after a 0.2 percent rise in August.

At the same time, the personal saving rate as a percentage of disposable personal income improved to a negative 0.2 percent from negative 0.5 percent the month before.

This was the best rate since May 2005, but it was the 18th consecutive month in which consumers spent more than their disposable income.

US consumer prices, excluding food and energy costs, rose by an expected 0.2 percent in September, showing some deceleration from the 0.3 percent increase for August.

Compared with a year earlier, the index showed an increase of 2.4 percent, just below August’s 11-year high of 2.5 percent. While that figure slipped a notch, it remained well above the Fed’s historical comfort zone of one percent to two percent.

Some analysts expressed relief that core inflation was decelerating, but others warned that the report was not likely to tip the Federal Open Market Committee towards cutting interest rates.

“I, like a number of FOMC members, will remain nervous about prices until I see a slowdown that looks more definitive and persistent,” said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut.

“The jury is clearly still out, and the Fed has every reason to sit on their hands until the economic and/or inflation situations change significantly,” Stanley said.

Just as the data were released, the Richmond Fed’s Lacker said core inflation was running at an unacceptable rate on a long-term basis and the outlook for prices was “discomforting”.

“The longer inflation remains elevated, the more difficult it will be to bring it back down,” he said, adding that the economy was “resilient enough right now to withstand further tightening.”

Investors for weeks have been trying to gauge when the Fed is likely to begin cutting rates again.

“The PCE numbers show and Lacker shows that this obsession with a rate cut is very premature,” said Lara Rhame, senior currency strategist with Credit Suisse in New York.