WASHINGTON (Reuters) - U.S. consumer spending rose more than expected in September as households boosted purchases of motor vehicles and inflation increased steadily, which could bolster expectations of an interest rate hike from the Federal Reserve in December.

A woman walks through a shopping mall in San Francisco, California January 5, 2012. REUTERS/Robert Galbraith/File Photo

The Commerce Department said on Monday that consumer spending, which accounts for about 70 percent of U.S. economic activity, increased 0.5 percent after dipping 0.1 percent in August. Last month’s rise in consumer spending offered a fairly strong handoff from the third quarter to the current quarter.

The report was published ahead of the start of the Fed’s two-day policy meeting on Tuesday. The U.S. central bank is not expected to raise rates at this meeting, which comes about a week before the Nov. 8 presidential election, but is expected to do so in December.

“The latest data should be of comfort to the Fed. Spending continues to underpin growth and, combined with positive developments on the labor market and inflation, should enable the Fed to tighten policy in December,” said Greg Daco, head of U.S. macroeconomics at Oxford Economics in New York.

Economists had forecast consumer spending rising 0.4 percent last month. When adjusted for inflation, consumer spending rose 0.3 percent after falling 0.2 percent in August.

The spending figures were incorporated into last Friday’s report on third-quarter gross domestic product. Consumer spending increased at a 2.1 percent annual pace after advancing at a robust 4.3 percent rate in the prior period.

A separate report on Monday showed factory activity in the U.S. Midwest hit a five-month low in October amid declining production and weak growth in new orders. The report from the Institute for Supply Management-Chicago suggests prolonged weakness in manufacturing as the sector continues to deal with the aftermath of a dollar rally and lower oil prices.

U.S. stocks were trading marginally higher as investors showed caution ahead of next Tuesday's elections. The dollar .DXY rose against a basket of currencies, while U.S. Treasury yields fell.

INFLATION TICKING HIGHER

Consumer spending combined with a spurt in soybean exports and a turnaround in inventory investment to boost economic growth to a 2.9 percent pace in the third quarter. The economy grew at a 1.4 percent rate in the April-June quarter.

Rising wages due to a tightening labor market should help support consumer spending. With consumer spending firming, inflation continued to gain steadily last month. The personal consumption expenditures (PCE) price index increased 0.2 percent after a similar gain in August.

In the 12 months through September the PCE price index rose 1.2 percent, the biggest gain since November 2014, after advancing 1.0 percent in August.

Excluding food and energy, the so-called core PCE price index rose 0.1 percent after advancing 0.2 percent in August. In the 12 months through September the core PCE rose 1.7 percent after a similar increase in August.

The core PCE is the Fed’s preferred inflation measure and is running below its 2 percent target.

“Overall inflation is accelerating as energy prices and the U.S. dollar have stabilized since the spring. Stronger wage growth from the tight labor market will also help push up inflation over the medium term,” said Gus Faucher, deputy chief economist at PNC Financial in Pittsburgh.

Consumer spending last month was lifted by a 1.3 percent surge in purchases of long-lasting manufactured goods such as automobiles. Spending on services rose 0.3 percent.

Personal income increased 0.3 percent in September after rising 0.2 percent in August. Wages and salaries advanced 0.3 percent after edging up 0.1 percent the prior month. Savings fell to $797.8 billion from $820.5 billion in August.