US inflation subdued

Mr Greenspan has previously warned over deflation

US inflation grew at a slower than expected pace last month, reinforcing expectations that the US Federal Reserve will leave interest rates at their current 48-year low of 1% for some time to come.

The broadest measure of consumer prices rose 0.3% in August to stand 2.2% higher than one year ago, while so-called "core" inflation - which strips out volatile food and energy prices - inched 0.1% higher.

Economists had forecast that broad consumer prices would rise 0.4%, while core inflation would climb 0.2%.

The annual rate of core inflation now stands at just 1.3%, its lowest level in 37 years.

The figures provided further confirmation that inflationary pressures remain in check, giving the Federal Reserve - the US central bank - leeway to hold interest rates on hold at 1% until the economy revives.

Rate outlook

The Fed confirmed later on Tuesday that it was keeping rates at 1% following its latest rate-setting meeting.

Analysts played down recent warnings that the world's biggest economy could follow Japan into deflation - where a spiral of falling prices chokes off consumer spending and halts economic growth.

"Consumer prices are rising moderately in most areas where people buy goods every day," said Joel Naroff at Naroff Economic Advisors.

"It is clear that consumer inflation is running between two and 2.5%. And that's long-term trend."

Earlier this year, Federal Reserve Chairman Alan Greenspan said deflation posed a threat, albeit a minor one, to the US economy.

Industry disappoints

The increase in consumer prices last month largely reflected a 2.7% jump in energy costs, their biggest monthly rise since March.

Petrol prices surged 6.2%, their largest gain since February.

Separate data out on Tuesday showed that US industrial production rose by a disappointing 0.1 % in August, far below the anticipated 0.3% gain.

The lower than expected increase was attributed to a 2.6% fall in car production.

However, last month's electricity black-out across much of the industrialised north-eastern US had little effect on the figures.