US economic growth slowed more than expected in the first quarter as higher food and petrol prices hit consumer spending and sent a key inflation measure rising at its fastest pace in two-and-a-half years.
Growth in US GDP braked to a 1.8 per cent annual rate after a 3.1 per cent fourth quarter pace, the Commerce Department said. Economists had expected a two per cent growth pace.
But the pull back in output – also a result of harsh winter weather, a widening trade gap and weak government spending – will probably be short given a firming labour market.
"The US economy saw the unwelcome combination of slower growth and rising inflationary pressures in the first quarter, but the outlook remains positive," said Markit chief economist Chris Williamson.
"Evidence suggests that the recovery should be sustained at a robust pace in coming quarters. Reassuringly, surveys such as the ISM Purchasing Managers' Index suggest that the economy retains strong momentum, and global PMI data indicate that export markets are showing resilient growth."
The Federal Reserve acknowledged the slowdown in first-quarter growth on Wednesday, describing the recovery as proceeding at a "moderate pace" - a slight step back from a statement in March when it said the economy was on a "firmer footing."
It trimmed its growth estimate for 2011 to be 3.1-3.3 per cent from a 3.4-3.9 per cent January projection.
The US central bank signaled it was in no rush to start withdrawing the massive monetary stimulus it has lent the economy. It confirmed plans to complete its $600bn bond buying programme in June.
Growth in the first quarter was curtailed by a sharp pull back in consumer spending, which expanded at a rate of 2.7 per cent after a strong four per cent gain in the final three months of 2010.
Rising commodity prices meant the households that drive about 70 per cent of US economic activity had less money to spend on other items.
The report also underscored the pain that strong food and petrol prices are inflicting on households.
A broader measure of inflation, the personal consumption expenditures price index, rose at a 3.8 per cent rate - its fastest pace since the third quarter of 2008 - after increasing 1.7 per cent in the fourth quarter.
The core index, which excludes food and energy costs, accelerated to a 1.5 per cent rate - the fastest since the fourth quarter of 2009 - from 0.4 per cent in the fourth quarter.
The core gauge is closely watched by Fed officials, who would like it around two per cent.