Early signs of the impact of Hurricane Katrina on the US economy emerged yesterday as figures showed that a shutdown of oil production in readiness for the storm led to a virtual stalling of industrial production in August.
Although the full effects of the devastation wrought by the hurricane on August 29 will be felt in September, the US Federal Reserve said industrial output rose just 0.1% last month.
Excluding the oil and gas sector, production increased by a more robust 0.4% during the month, reinforcing the belief on Wall Street that the Fed will raise interest rates for the 11th successive time when it meets next week.
Analysts said separate figures out yesterday showing a slump in retail sales last month were unlikely to persuade the central bank to halt the increases in borrowing costs, since the data was distorted by the ending of special discounts on cars.
Car sales were down by more than 12% in August, leading to a 2.1% drop in retail sales overall. Once the auto sector was stripped out, however, spending was up 1% - twice Wall Street's expectations.
Graham Turner, of the consultancy GFC Economics, said that although underlying inflationary pressure in the US was weak, the Fed was likely to "err on the side of caution" and continue to raise rates.
Policymakers elsewhere also signalled yesterday that monetary policy will get tighter over the coming months. The deputy governor of the Bank of Japan, Kazumasa Iwata, said the bank was "very close" to calling a halt to the country's ultra-easy policy regime, which has used a combination of zero interest rates and easily available credit in order to haul Japan out of its decade of deflation.
Meanwhile, Jean-Trichet, the president of the European Central Bank, said it was closely monitoring the impact of higher oil prices on inflation. While making it clear that interest rates in the eurozone were unlikely to budge from 2%, Mr Trichet told the European parliament: "We will continue to monitor inflation expectations very, very closely. Particular vigilance is required in order to ensure that longer term inflation expectations remain well anchored."
