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Last Updated: Tuesday, 16 December, 2003, 17:47 GMT
US inflation sees surprise fall
New York scene
Shoppers are seeing few signs of price rises
Inflation in the US has hit its lowest level for nearly 38 years, according to the latest official data.

The figures showed prices fell slightly last month, bringing the annual rate of underlying inflation down to 1.1%.

Analysts said the surprise fall in inflation meant the prospect of an early interest rate rise had receded.

Other official data released on Tuesday showed production at US factories surging ahead at its fastest rate for four years.

Industrial production grew by 0.9% in November, helped by a recovery in the manufacturing sector which has been showing signs recently of a turnaround.

"The economy is perking along pretty nicely and isn't generating inflation," said Bill Cheney, chief economist at John Hancock financial services.

Rate rises postponed?

The latest price data showed the consumer price index fell by 0.2% last month, as petrol, clothes and airline fares all became cheaper.

Core prices - which exclude energy and food costs - dropped by 0.1%.

The falls surprised analysts who had been expecting a slight rise.

(Prospects for inflation) support the notion that the Fed might not have to raise interest rates at all next year
Cary Leahey, Deutsche Bank Securities

Core inflation has now risen by 1.1% over the past 12 months, the lowest level since January 1966.

Expectations of a rise in US interest rates early next year have been gradually reducing as the economy is showing few signs of price pressures.

Last week, minutes from a meeting of the US Federal Reserve showed it thought it was likely that inflation would remain low for "the next year or two".

"(The price data) supports the Fed's own internal forecast that over the next six months inflation should grind a little bit lower," said Cary Leahey, senior US economist at Deutsche Bank Securities in New York.

"That supports the notion that the Fed might not have to raise interest rates at all next year."

Current account

Other economic figures released on Tuesday showed the US current account deficit shrank during the July to September period.

The third quarter deficit fell to $135bn from an upwardly revised $139.4bn in the May to June quarter.

The current account covers investment earnings and foreign aid as well as trade in goods and services.

Previous rises in the current account deficit have been blamed for the recent weakness in the US dollar against other major currencies.

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