Personal income rises, inflation moderates

WASHINGTON (Reuters) - U.S. personal income rose more than expected in February as the economy teetered on the brink of a recession, while both personal spending and a key price measure increased only slightly, a government report showed on Friday.

The Commerce Department reported that February personal income rose 0.5 percent, exceeding a forecast of a 0.3 percent gain made by analysts polled before the report.

Stock index futures briefly added to gains after the report, while the dollar and U.S. government debt prices rose.

The department said personal spending increased 0.1 percent in February, in line with expectations, after a 0.4 percent gain in January.

The personal consumption expenditure price index, a key measure of inflation, rose 0.1 percent in February after a downwardly revised increase of 0.3 percent in January. Excluding volatile food and energy costs, the personal consumption expenditure index also rose just 0.1 percent, in line with analyst expectations.

On a year-over-year basis, this core index rose 2 percent, matching the prior months' gain, which was downwardly revised from 2.2 percent.

"The decline in the year-over-year core PCE is important in that it supports the notion the Fed is making the right decision in cutting rates aggressively and not threaten long-term price stability. It argues that the Fed can lower rates in the months ahead," said Zach Pandl, an economist with Lehman Brothers in New York.

Many officials at the Federal Reserve, which has cut interest rates by 3 percentage points since mid-September in a bid to combat recession risks, have said they prefer to keep the core price gauge in a 1 percent to 2 percent range.

Earlier this week, the presidents of both the Dallas and Chicago Federal Reserve banks warned the central bank needs to be wary of a rise in inflation even as it navigates the United States through an economic slowdown.

(Reporting by Doug Palmer, Editing by Neil Stempleman)