The US mortgage crisis is contributing to financial turmoil

Consumer prices in the US for July this year rose by 0.8 per cent, twice the expected rate, and by 1.1 per cent in June.

In addition, core inflation, which excludes food and energy costs, rose by 0.3 per cent in July, while in the past year it has risen by 2.5 per cent.

Inflation is raising concerns that the US Federal Reserve could be forced to raise interest rates as it struggles to prevent a recession.

Tight credit conditions, spiralling oil and food prices and the US mortgage crisis have all contributed to turmoil in the US financial markets in recent months.

Moderation hopes

Rising oil and food prices can lead to consumers tightening their budgets and cutting spending on non-essentials which can in turn hamper wider US economic growth.

The central bank, which kept interest rates unchanged at two per cent earlier this month, has said that it expects inflation to moderate later this year.

And economists point to lower energy prices in the past few weeks as signs that inflation levels may taper off slightly.

Stephen Gallagher, an economist at Societe Generale bank, told AFP: "Despite the jump in inflation readings for July, we have rising conviction that inflation readings for August and now even September will be more favourable thanks to the sustained trend in retail gasoline and natural gas prices."

Meanwhile, in a separate report ,the labour department said on Thursday that another 450,000 workers had filed new claims for jobless benefits last week, down 10,000 from a week earlier but still at levels associated with recession.

However, a four week average of new jobless claims climbed to 440,500 from 421,000 the week before, the highest such number in six years.

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