US economic growth was lower and inflation was higher than previously thought in the first three months of the year, according to official figures released yesterday.
The economy expanded by 3.9 per cent on an annualised basis rather than the 4.4 per cent initially estimated. Growth was dragged lower by a widening of the US trade deficit, which was revised from $525.2 billion (€431 billion) to $535.6 billion.
In addition, the Federal Reserve's favourite gauge of inflation, the personal consumption expenditure deflator - which excludes volatile food and energy prices - rose by 2 per cent rather than 1.7 per cent.
Economists said the rise was unlikely to rekindle fears of a surge in price pressures. Mr Stephen Gallagher, an economist at Société Générale bank, said the market had factored in a pick-up in price rises but did not expect this to trigger a longer-term rise in inflation.
"The acceleration in price rises in the first three months of the year appears to have partly been payback for the extremely low inflation in 2003," Mr Gallagher said. "It seems we are seeing some tapering off of inflation now."
The figures had no noticeable effect on financial markets and the yield on the 10-year treasury bond was unchanged at 4.66 per cent. Economists are still braced for a 25 basis point increase in interest rates when the Fed meets on Wednesday.
In May, the consumer price index, excluding food and energy, rose just 0.2 per cent, helping to allay fears that inflation may be gathering momentum.
The mixed economic picture painted by the GDP revision was brightened slightly by signs that the US housing market continues to boom.
Existing home sales rose 2.6 per cent to a record 6.80 million on an annualised basis, above the consensus 6.50 million. Total home sales soared past the eight million mark in May for the first time.
The figures follow a record gain in new homes sales in May of 1.369 million units on an annualised basis. That was a gain of 14.8 per cent from the upwardly revised 1.192 million in April.
Economists said that many Americans were trying to move quickly and lock in lower interest rates in expectation of a further tightening of monetary policy.
"The near-term outlook for existing home sales remains bright," said Mr Haseeb Ahmed of consultancy Economy.com. "The fact that mortgage applications have been strong in recent months will ensure strength in existing home sales for a few more months.
