WASHINGTON (Reuters) - Personal income tumbled unexpectedly in July and spending slowed as the effects of government stimulus wore off and an inflation measure was at a 17-year high, a government report released on Friday showed.

Personal income fell 0.7 percent in the month, the sharpest decline since a 2.3 percent plunge in August 2005 after Hurricane Katrina, the Commerce Department said. Analysts were expecting July income to stay flat.

Consumer spending, which accounts for about two-thirds of national economic activity, rose 0.2 percent, as expected, the slimmest gain since February, after gaining 0.6 percent in June. However, inflation-adjusted spending dropped by 0.4 percent, the sharpest slide in four years.

Inflation, as measured by the year-over-year rise in the personal consumption expenditures index, rose 4.5 percent, the steepest since February 1991, the government said. When volatile food and energy costs were stripped out, the core PCE rose 2.4 percent, the biggest since February 2007.

Core PCE was up 0.3 percent from the previous month, in line with expectations.

(Reporting by Mark Felsenthal, Editing by Neil Stempleman)

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