U.S. economic growth slowed markedly during the second quarter as consumers and businesses tightened their belts, while gauges of inflation climbed.

Gross domestic product increased at a seasonally adjusted 2.5% annual rate April through June, the U.S. Commerce Department said Friday in its first estimate of second-quarter GDP.

The gain was weaker than the first quarter’s blistering 5.6% pace and undershot expectations on Wall Street. Economists had forecast a 3.2% increase.

But even as the economy slowed in the second quarter, inflation heated up.
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The government’s price index for personal consumption expenditures climbed 4.1%, after rising 2% in the first quarter. The PCE price gauge excluding food and energy — which is the Federal Reserve’s preferred inflation measure — rose 2.9%, after a 2.1% rise for January through March. The chain-weighted GDP price index increased at a 3.3% rate for a fourth straight quarter.

Consumer spending accounts for more than two-thirds of GDP and it rose 2.5% after soaring 4.8% in the first quarter. Spending contributed 1.74 percentage points to GDP in the second quarter; it had contributed 3.38 percentage points in the first quarter.

Purchases of durable goods fell 0.5% in the period, after increasing by 19.8% in the first quarter. Second-quarter nondurables spending rose by 1.7%. Services spending climbed 3.5%.

Business spending increased by 2.7%. Investment in structures went up by 12.7% and equipment and software decreased 1.0%. Overall first-quarter outlays by businesses rose 13.7%.

Residential fixed investment, which includes spending on housing, dropped by 6.3%, after going 0.3% lower in the first quarter. The decline was the largest since 8% in third-quarter 2000.

Businesses increased their inventories in the second quarter — more than they had earlier this year. Stockpiles rose by $52.6 billion. Companies boosted stocks $41.2 billion in the first quarter.

U.S. exports rose by 3.3%. Imports increased 0.2%. First-quarter exports had gone up 14% and imports rose by 9.1%.