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Tuesday, October 19, 1999 Published at 13:07 GMT 14:07 UK

Business: The Economy

US prices creep up

Rising energy and tobacco prices prompted the rise in inflation

US inflation continued to rise last month, showing its fastest increase since April.

The Consumer Price Index rose 0.4% in September, up from August's 0.3% rise.

The so-called core CPI, which strips out volatile food and energy costs, rose 0.3% following a 0.1% gain in the previous month.

The core rate is seen as a more accurate indicator of inflationary pressures in the economy.

The figures were in line with market expectations and were scrutinised by investors because of fears that they may prompt another interest rate rise.

The fact that the figures were no worse that expected saw traders breathe a sigh of relief and shares promptly rallied in New York.

The increase was driven by energy and tobacco prices.

Energy costs have been on the rise since early this year because of output cuts by oil-producing nations. This has led to the CPI being nudged higher, although the core index has remained relatively tame.

In September energy costs jumped 1.7% while tobacco prices surged 6.5%.

The CPI is one of a handful of key data reports that features prominently at the policy meetings of the US central bank, when they decide the future level of interest rates.

Arthur Hogan, chief market analyst at Jefferies & Co said: "This is absolutely terrific news about the CPI. It is just what the market needed...The ex-food and energy looks very benign."

Another analyst added that the market was still wary that the Federal Reserve could increase interest rates. "But it makes it a bit more difficult to justify (an interest) rate increase with a rate of inflation as low as it appears to be," he said.

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