US markets boosted as inflation fears subside

Signs that US inflation remains tame boosted the US financial markets yesterday by removing any residual fear that the Federal Reserve might raise interest rates at its last Open Markets Committee meeting of the year. Consumer prices rose just 0.1 per cent in November, trimming the annual inflation rate to 1.8 per cent. "Core" prices, excluding volatile food and energy components, also rose 0.1 per cent during the month. A 0.7 per cent drop in transport prices thanks to lower air fares explained the smaller-than-expected increase.

Wall Street economists expressed relief that early signs of pressure on wages had not fed through to prices yet, although some remain convinced the Fed will have to raise rates during the first few months of 1998 as inflationary pressure build in the jobs market. Separate figures showed new housebuilding starts up unexpectedly last month. The number of new homes started climbed 0.8 per cent, reaching an annual rate of 1.53 million units. Low long-term interest rates are boosting the housing market.