Personal income fell and consumer spending slowed in July as the impact of the tax rebates faded and a pickup in inflation eroded buying power, Bloomberg reported.

Incomes dropped 0.7 percent, the first decrease since August 2005, reflecting the end of the rebates. The decline in incomes followed a 0.1 percent gain in June and 1.8 percent increase in May, a U.S. Commerce Department report said today.

A 0.2 percent rise in purchases last month matched forecasts and followed a 0.6 percent increase in June, the report said. Prices rose by the most in 17 years.

The increase in spending was the result of rising prices, CNNMoney said.

Americans, faced with rising unemployment, soaring food and fuel costs and falling home values, are cutting back on purchases of big-ticket items such as automobiles and furniture, Bloomberg said. The federal tax rebates will no longer feed consumer spending, which is the biggest part of the economy, economists told Bloomberg.

The Federal Reserve’s preferred gauge of prices, which excludes food and fuel, climbed 0.3 percent for a second month. The so-called core price measure was up 2.4 percent from a year before, the most since February 2007.

Adjusted for inflation, spending fell 0.4 percent, the biggest drop in four years. Price-adjusted purchases of durable goods, such as autos, furniture and other long-lasting items, dropped 1.6 percent.

Spending on nondurable goods decreased 0.9 percent, and purchases of services, which account for almost 60 percent of all outlays, were unchanged.