The numbers: Consumer spending rose sharply in July for the fifth month in a row, getting the economy off to a good start at the beginning of the third quarter.

The good news has not come without a cost, though. The strong economy has pushed a key inflation barometer to a six-year high and all but assured that U.S. interest rates will soon rise.

The government said consumer spending climbed 0.4% in July, matching the estimate of economists polled by MarketWatch. Incomes rose 0.3%.

Higher spending and faster economic growth have also fueled creeping inflation amid a growing shortage of labor and rising costs for raw materials.

The 12-month increase in the PCE index, the Federal Reserve’s preferred inflation gauge, rose to 2.3% from 2.2%. That’s the highest level since April 2012.

What’s more, the yearly increase in the core PCE rate that strips out food and energy hit 2% for first time since March and only second time since 2012.

What happened: Consumer spending has increased by 0.4% or higher in every month going back to March. In July, Americans spent more on hotels, eating out and prescription drugs.

The savings rate fell a tick to 6.7% from 6.8% as spending outpaced incomes. The savings rate had been as high as 7.4% earlier this year.

The PCE inflation index rose 0.1% in July. The core rate advanced 0.2%.

Big picture: Ebullient consumers helped turbo-charge the economy in the spring, when gross domestic product surged by 4.2%. And economists predict GDP will increase by at least 3% in the third quarter.

Consumers have by far the biggest influence on the economy and they are feeling pretty darned good. Unemployment is low and falling, incomes are rising and the stock markets has roared back to record or near record highs. Consumer confidence recently rose to an 18-year peak.

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The downside to the economy’s upside, however, is steadily increasing inflation. The Fed is raising interest rates to prevent the economy from overheating, but that means Americans will pay more to borrow money to buy new homes and cars and the like.

The Fed is widely expected to raise interest rates again at the end of September.

Read:Americans haven’t been this confident in the economy since 1990s internet boom

What they are saying?: “Improving household finances, fueled by solid wage gains and lower personal tax rates, will help bolster consumer spending for the next several quarters,” said James Bohnaker, associate director of U.S. and consumer economics at IHS Markit.

Market reaction: The Dow Jones Industrial Average DJIA, +1.33% and the S&P 500 SPX, +1.59% fell in Thursday trades. The stock market has surged this week and set a number of records, however, after President Trump announced a pending new free-trade deal with Mexico.

Read:Trump deal with Mexico eases fears of trade wars

The 10-year Treasury yield TMUBMUSD10Y, 0.657% was flat at 2.87%. Bond yields had climbed to as high 3% earlier this year before retreating.

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