Fresh signs point to recovery in the US

Inflation in the US rose for a second month in a row in February, adding to mounting evidence that the world's largest economy is growing.

Inflation in the US rose for a second month in a row in February, adding to mounting evidence that the world's largest economy is growing.

The latest data from the US yesterday, which also revealed that fewer workers filed for benefits last week, will also boost speculation that interest rate rises lie ahead.

Higher prices for clothing, medical care and airline fares contributed to a 0.2 per cent rise in consumer inflation in February. Some economists were worried that a 0.3 per cent pick-up in the core consumer price index, which excludes volatile food and energy prices, indicated that price pressures would build in coming months.

But Anthony Santomero, a member of the US rate setting committee, last night warned against relying too heavily on a single month of data. "It's commonly the case that inflation numbers decline at the beginning of a recovery because of the excess capacity associated with a recession. Therefore, in the near term, I believe inflation is well contained," he said

In another report, new claims for unemployment insurance fell by a seasonally adjusted 12,000 last week to 371,000, the lowest level in a month, providing further evidence that layoffs are abating as the economy stages a comeback.

Meanwhile, the New York-based Conference Board yesterday reported that a key index of US economic activity remained flat in February after four months of gains. Analysts were forecasting a small gain.

"The US economy has quickly turned from recession and is now firmly in recovery," said Ken Goldstein, an economist at the Conference Board. "But the road ahead is far from smooth, with sluggish profits and weak export demand restraining growth."

On Tuesday, the Federal Reserve left short-term interest rates at a 40-year low of 1.75 per cent, and upgraded its assessment of the economy to say its risks were now balanced between further weakness and inflation.