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US economy on the mend but deflation still a risk

There was further proof yesterday that the US economy is starting to recover from recession as data showed that US consumer prices rose modestly in September.<br /><br />The US Labour Department said the Consumer Price Index (CPI) rose 0.2 per cent in September on the previous month, taking the annual inflation rate to -1.3 per cent from -1.5 per cent in August. <br /><br />Paul Ashworth, senior US economist at Capital Economics, said that there were worrying deflationary forces in the housing market.<br /><br />&ldquo;The upshot is that we believe deflation is still the biggest threat, despite signs that the recovery in the real economy continues to gain momentum,&rdquo; he added.<br /><br />The department also said initial claims for unemployment aid fell to 514,000 last week, indicating an easing in job shedding, while the Empire State manufacturing index surged to +34.6 in October, from +18.9.