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Last Updated: Wednesday, 16 August 2006, 13:55 GMT 14:55 UK
Petrol prices fuel US inflation
Vehicle driving past petrol station in Denver
Petrol prices have risen sharply in the US this year
US inflation rose in July, driven by a sharp increase in the price of petrol and other energy bills.

The closely watched Consumer Price Index rose by 0.4% last month, double the 0.2% increase seen in June.

Most of the rise, which was in line with market expectations, was caused by a 2.9% increase in energy prices, the highest jump in three months.

Core inflation, which excludes food and energy, rose just 0.2%, below analyst predictions of a 0.3% increase.

The less-than-expected rise in core inflation will be welcome news for the US Federal Reserve, which after keeping interest rates on hold at 5.25% this month, is now aiming for a slowing economy to reduce inflationary pressures by itself.

July's slowdown in core inflation was helped by clothing prices dipping 1.2%, their biggest decline in two decades.

The rise in petrol and other energy bills has been fuelled by the continuing instability in the Middle East.

The annual rate of consumer inflation, the Department of Labor said, was 4.8% - or 2.7% on the core figure. For the whole of 2005, consumer prices rose 3.4%.

'Positive enough'

Meanwhile, the Federal Reserve also reported on Wednesday that output at US factories, mines and utilities increased by 0.4% last month, just half of the 0.8% rise seen in June.

The rise in industrial production was the slowest since no gain at all was recorded for May.

Analyst Jim Awad of Awad Asset Management said the figures were good but not great.

"This is not a home-run set of numbers, but they are probably positive enough that the stock market will try to interpret them positively," he said.

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