Consumer spending rose a healthy 0.3% in June, slightly below the strong gains of the past three months, while incomes turned in a solid 0.4% gain for the fourth straight month.

The Commerce Department said Tuesday that the spending increase followed strong gains of 1% in March, 0.6% in April and 0.5% in May as the consumer rebounded following a lacklustre start to the year.

An inflation gauge favoured by the Federal Reserve showed prices rising 1.4% over the past year, well below the Fed’s 2% inflation target. Fed officials are widely expected to reduce their benchmark interest rate for the first time in a decade at this week’s meeting, in part because of the continued short-fall in inflation despite strong economic growth and unemployment at near a 50-year low.

The overall economy slowed to a growth rate of 2.1% in the April-June quarter from 3.1% in the first quarter as the trade deficit, which is a drag on growth, widened and businesses cut back on capital investment. The slowdown would have much more severe if consumers had not rebounded following a sharp slowdown in the first quarter.

Consumer spending grew at an annual rate of 4.3% in the second quarter after a disappointingly weak 1.1% gain in the first quarter. Economists are optimistic that consumer spending, which accounts for 70% of economic activity, will keep showing solid gains in the second half of this year.

The saving rate rose to 8.1% of after-tax incomes in June, reflecting annual revisions by the government which sharply boosted the previous figures.

The slower spending gain reflected a modest 0.4% rise in spending on durable goods such as autos after a sizzling 1.5% gain in May.

Increase in home prices cooled in May

Meanwhile, U.S. home prices rose at a slower pace in May, a sign that many would-be buyers are finding properties unaffordable.

The S&P CoreLogic Case-Shiller 20-city home price index increased 2.4% in May from a year earlier. That marked a slight deceleration from the 2.5% year-over-year gain in April.

The sluggish price growth stems largely from the most expensive markets, where years of price growth have undermined affordability. Home prices rose less than 2% in Los Angeles, New York, San Diego and San Francisco. Prices in the typically hot market of Seattle fell 1.2% from a year ago, a sharp reversal from an annualized gain of 13.6% in May 2018.

There are signs in the National Association of Realtors report on existing home sales that lower mortgage rates might lift prices.