Saturday, June 16, 2007

US prices data allay rate rise concerns

US prices data allay rate rise concerns
By Alex Barker and Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: June 16 2007 03:00 | Last updated: June 16 2007 03:00

Underlying US consumer prices rose less than expected last month, easing concerns that higher energy costs would exert inflationary pressure on the broader economy.

The moderate rise in core prices fits a pattern seen in recent months of decelerating underlying inflation. Economists said that this trend, which was broadly expected by the Federal Reserve, makes it more likely that interest rates will remain steady.

Core consumer prices, a closely watched measure that excludes volatile energy and food costs, rose by just 0.1 per cent in May. This lower-than-expected rise came in spite of rising energy costs pushing the overall consumer price index up 0.7 per cent last month, its biggest increase in almost two years.

Peter Kretzmer, senior economist at Bank of America, said: "The Fed will be pleased by the ongoing easing of core consumer inflation evident in the May release."

"Still, [the Fed] is likely to remain concerned about the impact of high levels of resource utilisation, so long as the labour market remains robust and the unemployment rate low."

The Fed has kept rates at 5.25 per cent while maintaining a bias towards controlling inflation. Ben Bernanke, the Fed chairman, has said that although core inflation appeared to be moderating, the "risks remained on the upside".

Separate data showed the US current account deficit widened less than expected in the first quarter. The current account deficit grew to $192.6bn (£97.4bn, €144bn) from $187.9bn, compared with economists' predictions of a $201bn gap.

Wall Street investors reacted positively to the inflation update, with the S & P 500 Index advancing 0.8 per cent by midday.

"What we are getting is reasonable economic growth absent of attendant inflationary effects," said Jeoff Hall, managing economist at Thomson Financial.

Annual consumer prices rose from 2.6 per cent in April to 2.7 per cent in May. Core annual prices rose 2.2 per cent, its smallest monthly rise in more than a year.


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