MercoPress. South Atlantic News Agency

US economy steams ahead with low inflation

The United States economy continued to grow at a fast pace despite the impact of hurricanes and record high oil prices with third quarter GDP expansion reaching 4,1%.

According to the latest release from the Commerce Department this is the fastest rate of growth since the first quarter of 2004, and up from 3.3% in the previous three months. Consumer demand - which has been helped by discounting - was the key driver, along with business investment.

Consumer spending, which accounts for almost two-thirds of economic activity, increased by more than 4% during the third quarter, up from 3.4% in the previous three month period.

However third quarter expansion was less than had been initially predicted and corporate earnings slid as companies had to meet the cost of hurricanes Rita and Katrina. Many analysts are predicting that growth is likely to slow to around 3% in the fourth quarter as firms, especially in the car industry, offered fewer discounts.

The US Labour Department also revealed that a record decline in energy costs in November led to the biggest drop in U.S. consumer prices in more than a half century. Excluding fuel and food, prices rose 0.2% for a second month.

The 0.6% decrease in the consumer price index was the largest since July 1949 and followed a 0.2% increase in October. Core prices were up 2.1% in the 12 months ended in November, matching the October gain. Consumer prices were up 3.5% for the 12 months ended in November compared with a 4.3% year-over-year gain the previous month.

So far this year, consumer prices are rising at a 3.8% annual rate compared with a 3.7% increase at the same time last year. Core prices are rising at a 2.1% annual pace, down from a 2.2% rate in the first 11 months of 2004.

Energy prices slumped 8% in November after falling 0.2% a month earlier. Fuel costs were up 18% in the last 12 months. Gasoline prices declined 16% in November and natural gas costs fell 0.5%.

Food prices, which account for about a fifth of the index, rose 0.3% for a third month in November.