The Commerce Department said on Monday consumer spending rose 0.5 percent last month after being unchanged in July. The growth in August was just above the median forecast in a Reuters poll of a 0.4 percent gain.

"(The data) is a further signal that the positive momentum in domestic activity is being sustained," said Millan Mulraine, an economist at TD Securities in New York.

Even after adjusting for inflation, spending was 0.5 percent higher, the biggest gain since March. Growth in personal income ticked higher to a 0.3 percent gain, in line with forecasts. Some of the strength in spending came from a decrease in the saving rate, which eased back from a 1-1/2-year high in July.

The data reinforces the view that the U.S. economy will finish this year firing on nearly all cylinders, and the dollar pared an earlier decline following the report's publication.

Most investors are betting the U.S. Federal Reserve could raise interest rates next year to keep inflation in check, though Monday's data gave little sign of growing price pressures.

The Fed's preferred gauge of inflation was up 1.5 percent in August from a year earlier, down slightly from the reading in July, the Commerce Department data showed. A measure of underlying price pressures which strips out food and energy held at 1.5 percent. That reading had dipped to 1.2 percent earlier this year.

Some policymakers at the U.S. central bank remain concerned that inflation remains stuck well below their 2 percent target. Chicago Fed President Charles Evans said on CNBC television on Monday that the Fed should patiently seek to push inflation up to its target so it doesn't have to "backtrack" after raising rates.

Data on Friday showed the U.S. economy grew at its fastest pace in 2-1/2 years in the second quarter with all sectors contributing to the jump in output.

Relatively strong consumer spending during the period was taken as a sign the economy's recovery from the 2007-09 recession is becoming more durable.