U.S. consumer spending fell for a second straight month in December amid renewed business restrictions to slow the spread of COVID-19 and a temporary expiration of government-funded benefits for millions of unemployed Americans. 

The report from the Commerce Department on Friday also showed inflation steadily rising last month. Expectations that inflation would perk up this year were supported by other data showing a solid increase in labor costs in the fourth quarter. 

But a rise above the Federal Reserve's 2 percent target, a flexible average, is unlikely to worry policymakers. The U.S. central bank is expected to maintain its ultra-easy monetary policy stance for a while as the economy battles the pandemic. Excess capacity remains throughout the economy, which could limit companies' ability to raise prices. 

"The Fed would like inflation to average 2 percent, so it would like inflation to temporarily move above 2 percent," said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. "Inflation pressures will remain limited to a few sectors as high unemployment will restrain wage growth." 

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, slipped 0.2 percent last month as outlays at restaurants declined. Spending at hospitals also fell, likely as patients stayed away in fear of contracting the coronavirus.

Households also cut back spending on recreation. 

Consumer spending tumbled 0.7 percent in November. Economists polled by Reuters had forecast spending would fall 0.4 percent in December. 

When adjusted for inflation, consumer spending decreased 0.6 percent last month after dropping 0.7 percent in November. That likely sets a lower base for consumer spending in the first quarter. 

Another drop in January is not expected as states, including New York and California, have started easing pandemic-related restrictions. 

But outlays on long-lasting manufactured goods, the main driver of spending during the pandemic, fell for a second consecutive month in December. Spending on nondurable goods dropped for a third straight month. Services gained 0.1 percent. 

"Goods spending has clearly rolled over, and we anticipate the pull-forward in demand in the second half of last year will also weigh on consumption of goods at the start of this year," said Tim Quinlan, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. 

"We do not anticipate spending to pick up significantly until a vaccine is widely administered."

U.S. stocks fell sharply. The dollar was steady against a basket of currencies. U.S. Treasury prices were mostly lower. 

The data was included in Thursday's advance gross domestic product report for the fourth quarter, which showed the economy growing at a 4 percent annualized rate after a record 33.4 percent pace in the July-September period. 

Consumer spending rose at a 2.5-percent rate last quarter following a spectacular 41-percent growth pace in the third quarter.