(CN) - Consumer spending rose 0.5 percent in December, a major improvement over a 0.2 percent gain in November, and the fastest pace of spending in three month.
The Commerce Department said Monday the increase -- the best showing in spending since it rose 0.7 percent in September -- was largely driven by a 1.4 percent surge in spending on durable goods, like cars and trucks.
Consumer spending is a closely watched economic indicator because it accounts for 70 percent of economic activity.
Although overall growth in the economy slowed in the fourth quarter of 2016, economists believe the rise in consumer spending could be a sign of renewed momentum for the current quarter.
Separately, the Federal Reserve said that inflation ticked up 0.2 percent in December, and that over the past 12 months, it has risen 1.6 percent, the largest 12-month gain in more than two years.
Economists said Monday that if the trend continues, the Fed is likely to raise interest rates later this year.
In December the Federal Reserve boosted its key interest rate by a quarter-point to a still-low range of 0.5 percent to 0.75 percent.