Petrol price spike fuels US inflation

Slowing growth, not inflation, is the main concern for the US economy

Economists have blamed rising fuel prices for a higher than expected increase in US inflation last month.

Prices rose 0.4% last month, four times the rate of increase in August, a survey by the US Labor Department said.

The rise would typically suggest that the US central bank, the Federal Reserve, had limited room for manoeuvre in its drive to reduce interest rates and boost the country's flagging economy.

Analysts took comfort, however, from the contribution of higher petrol prices, raised by a spike in oil prices following last month's terror attacks.

Stripping out fuel and food costs, inflation rose by 0.2% in September.

Petrol spike

"The bottom line is that this is not concerning at all," said Jim Sullivan, economist at UBS Warburg in Stamford, Connecticut.

"With growth as weak as it is and with inflation tending to lag growth, inflation is clearly coming down."

Michael Cloherty, at Credit Suisse First Boston in New York, said: "The headline was a gasoline story.

"You move beyond that and the details were actually modestly encouraging rather than anything else."

Most surprising about the report was a fall in housing costs, he said.

Housing costs fell by 0.2% last month, the first decline since February 1986 and the biggest drop since December 1982.

Fed action

Concerns about the US economy have so far centred on the sharp slowdown in growth, rather than inflation.

Tame inflation has allowed the US Federal Reserve to aggressively cut interest rates nine times in its efforts to encourage more spending.

But the central bank would find it harder to take action if inflation reared its head as a serious concern.

During the first nine months of the year, consumer prices rose at an annual rate of 2.8%, compared with an increase of 3.4% for the whole of 2000.

Trade deficit narrows

Also on Friday, the Commerce Department revealed that August's trade deficit reached its narrowest level in 19 months.

The ongoing shrinking of the trade deficit reflects the weak US economy and a dwindling appetite for foreign-made computers, televisions and other consumer goods.

US stock markets got off to a mildly gloomy start.

At 1427 GMT, the Dow Jones Industrial Average was 80 points lower at 9,084, while the technology Nasdaq index was 17 points lower at 1,635.