US consumer prices rose moderately last month and industrial output posted its biggest gain since January, according to data yesterday that showed deflation risks ebbing as the recovery gains speed.
The Labour Department said its Consumer Price Index (CPI), the best-known inflation gauge, rose 0.2 per cent in July.
The closely watched core price measure, which strips out food and energy costs to give a clearer view of underlying trends, also climbed 0.2 per cent.
Separately, the Federal Reserve said industrial production jumped an unexpectedly large 0.5 per cent, boosted by a big gain in utilities output and a third straight monthly rise in manufacturing activity.
The advance in the CPI was a bit steeper than the 0.1 per cent rise expected on Wall Street.
Economists said this should help ease fears of deflation - a potentially harmful sustained drop in prices - without fuelling inflation worries.
"The CPI numbers show inflation is still very tame," according to Mr Gary Thayer, chief economist at A.G. Edwards & Sons in St Louis.
" Looking at the breakdown of the report, it's clear we are still comfortably in a range at a low level of inflation," Mr Thayer said.
Stock prices showed little reaction to the data while bond prices fell on the view the pick-up in production suggested the economy was gaining speed rapidly.
Trading in both debt and equity markets was thin, with many Wall Street players absent because of the massive power outage that hit the US east coast on Thursday. Power and telephone systems in many areas were not yet back online.
Medical care inflation, which had surprised economists by slowing early this year, resumed its prior quick ascent with a 0.5 per cent gain. Tobacco prices, which had fallen in May and June, rose a sharp 1.2 per cent on the back of tax increases.
Transportation costs gained 0.2 per cent, reflecting a 1.6 per cent rise in airline fares and a 1.5 per cent step up in fuel prices, while prices for clothing and recreation were flat.
This week's reports - including retail sales and trade data - have led many economists to push up forecasts for third-quarter growth and to look for an upward revision in the initially reported 2.4 per cent pace for the second quarter.
