US sales figures put fear of inflation in retreat

The latest figures on the US economy helped the financial markets stay calm yesterday. The Dow Jones index had barely moved by late morning, while a bout of profit-taking brought the dollar back from an earlier level of 127.15.

Evidence of weaker-than-expected retail sales and prices at the factory gate in October built on the sense of reassurance Alan Greenspan, the Federal Reserve Chairman, had imparted earlier in the week. Although other indicators have confirmed that the economy is booming, with unemployment at its lowest for a quarter century, the Fed refrained from raising interest rates this week because of the recent stock market turbulence.

Retail sales fell by 0.2 per cent in October because of a big drop in car sales for the second month running. Excluding cars, the total was 0.4 per cent higher during the month.

Retail spending is expected to pick up in the next month or two. "With Christmas just around the corner, stronger income growth bodes well for holiday sales," said Jonathan Basile, an economist at HSBC Markets in New York.

Prices charged by manufacturers edged up by 0.1 per cent last month, but remained 0.2 per cent lower than a year earlier. "Core" prices, excluding the volatile food and energy components, were flat in the month.

But their level in the latest three months compared with a year earlier has picked up sharply to 1.1 per cent, suggesting that producer prices have might passed their trough.

Despite the favourable figures yesterday, October's industrial output statistics, due on Monday, are expected to confirm that the economy is running at full capacity. If so, this will reignite the concerns about inflation triggered by last week's evidence on the tight jobs market.