White House downplays inflation fears

24-08-2006

White House economists have insisted that the US economy is set for a "soft landing", downplaying market fears about rising US inflation.

Releasing a twice-yearly update on the American economy, officials from George Bush's administration admitted that while consumer prices are set to rise this year, inflation levels are beginning to stabilise.

US inflation is expected to rise by three per cent in 2006, up from estimates of 2.4 per cent just six months ago.

But Ed Lazear, chairman of President Bush's council of economic advisers, insisted that officials did not expect higher-than-expected rises in inflation during the first few months of the year to "cascade into future periods".

"All the indications we have seen are that we are moving to a soft landing,” said Mr Lazear, who said that inflation levels had now stabilised at around 2.5 per cent.

The White House also stressed that US economic growth is expected to accelerate more quickly over the coming year.

Officials raised the forecast for economic growth in 2006 to 3.6 per cent, up from the 3.4 per cent expansion predicted in December.

But despite reassurances from the White House, reports suggest that investors are likely to remain uneasy amid signs that economic recovery in America is slowing and expectations that inflation will continue to rise.

Shares have fallen in stock markets across the US, Europe and Asia in recent weeks following concerns that America's Federal Reserve will continue to raise interest rates in a bid to curb consumer price inflation.

Investors fear that the reserve will raise rates as the US economy runs out of steam, halting economic recovery and hitting corporate profits.


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