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Wednesday, September 15, 1999 Published at 16:21 GMT 17:21 UK

Business: The Economy

US inflation fears ease

Big increases in petrol prices pushed up US inflation in August

The latest official inflation figures in the United States have soothed fears of serious overheating in the economy.

The Consumer Price Index (CPI) for August shows that underlying inflation remains subdued, reducing the likelihood of a further rise in interest rates.

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The Labor Department said higher oil costs had helped push the CPI up an expected 0.3%, but the core rate - the rate the markets watch closely - increased only 0.1%, compared to a 0.2% rise in the previous month.

The core rate excludes volatile food and energy costs and is seen as a more accurate indicator of inflationary pressures in the economy.

Year-on-year, the August CPI was up 2.3%, compared to a 2.1% gain in July.

The core rate was up 1.9% year-on-year, compared to 2.1% in the previous month.

Over the first eight months of the year, the CPI is running at a 2.6% annual rate, up from a 1.6% in the first eight months of 1998.

Interest rates

The CPI is one of a handful of key data reports that will feature prominently at the next policy meeting of the US central bank, the Federal Reserve, on 5 October, when officials will discuss whether to raise interest rates for a third time this year.

Although data showing a surge in consumer spending in recent months have stoked up concern that the economy is overheating, data such as the latest CPI suggest inflation is under control. That will bolster arguments for holding rates steady for now.

"It's not a done deal, but we expect the Fed to remain on hold in October," said Jay Feldman, economist at Credit Suisse First Boston.

"Certainly, the economy continues to grow robustly but judging by their recent statements, the Fed will take a wait-and-see stance, as long as inflation remains benign."

The broad category of energy prices rose by 2.7% in August, with gasoline prices soaring 5.6%.

Both the housing and food components of the CPI rose by a mild 0.2%, and apparel costs fell 0.3%. Helping to push up the index were medical care prices, which gained 0.4%.

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