NEW YORK (CNNMoney.com) -- Spending by consumers and personal income both rose faster in February, according to a government report Friday that showed the economy stronger than Wall Street forecasts, but also included an inflation reading that was higher than hoped.
Spending was up 0.6 percent, according to the Commerce Department report, compared to the 0.5 percent rise in January. Economists surveyed by Briefing.com had been looking for growth to slow to a 0.3 percent rise.
Income was also up 0.6 percent, compared to the 1 percent rise in January. Economists had also been looking for slowdown in income growth to a 0.3 percent increase as well.
"Today's income numbers threw cold water on worries about the strength of the economy," said Wachovia senior economist Mark Vitner. He said the wages seemed to show the real strength, with the rise in spending driven greatly by increased utility spending due to cold weather.
A not entirely rosy picture
But the report also includes a closely watched inflation reading, the so called core PCE deflator, which measures prices paid by consumers for goods other than food and energy. That was up 2.4 percent on an annual basis, up from a revised 2.2 percent rise in January, and only a 2 percent increase in the original January reading.
The new inflation reading is higher than what is generally seen as the Federal Reserve's comfort level of a 1 to 2 percent increase in that measure.
The overall PCE deflator, including energy and food prices, also increased to a 2.3 percent increase from only a 1.9 percent rise in January.
Last week's decision by the Federal Reserve to leave rates unchanged included a statement which seemed to downplay the risk of inflation compared to its previous comments. That had raised hopes in markets that the Fed might be willing to cut rates to deal with some weakness in the economy and problems in the real estate market.
But Congressional testimony by Fed Chairman Ben Bernanke and the latest economic readings this week seemed to point to the economy showing more underlying strength than previously feared. Some economists suggested Friday's inflation reading could force the Fed to consider raising rates in order to contain inflation pressures.
"No sooner did the Fed water down its policy statement seeking flexibility that inflation stepped up its pace and now is going to test the Fed's back bone," said economist Bob Brusca of FAO Economics.
But Gus Faucher, director of macroeconomics for Moody's Economy.com, said that the recent jump is not enough to make him scared about the threat of higher prices.
"If we see a couple of months of this, yeah, I'd be worried, but right now I'm not overly concerned," he said. "We still think growth will remain below potential and that should keep inflation in check." He said that at this point he's looking for the Fed to leave rates unchanged through the rest of this year and Friday's report didn't change that outlook."
But Rich Yamarone, director of economic research at Argus Research, said that he believes that inflationary pressures are clearly building, although he agrees with Faucher that a Fed rate hike is unlikely unless price measures go higher.
"We're hearing companies saying they're passing on higher costs and they're not having any problems with it because consumers have the money to pay the higher costs," Yamarone said. "The bottom line is inflation is a brewing. This is only going to be problematic for the Fed."
One other number of interest in the report is the national savings rate, which compares consumers' after-tax income to their spending. Once again, as in every month since April 2005, the report showed a negative savings rate, although there was a slight improvement to negative 1.2 percent from a negative 1.4 percent. That means that consumers on average spent $101.20 in February for every $100 of after-tax income earned. 
