The US economy grew at its slowest pace in two years during the first quarter this year, slowing to a 3.1% annual rate of expansion as consumers and businesses curbed spending in the face of rising prices.
The Commerce Department figures showed that growth in gross domestic product was the weakest since a 1.9% pace during the first quarter of 2003 and was a surprisingly sharp slowdown from the 3.8% rate registered in the fourth quarter of 2004. Wall Street economists had forecast Q1 GDP growth of around 3.6%.
Since the first quarter GDP data was compiled, oil prices have continued to rise and fears have grown they will feed into the broader economy, with many analysts expecting growth in the second quarter to be affected further.
The softer than expected start to 2005 is likely to boost expectations that Federal Reserve policymakers, who meet again next Tuesday to consider interest rate strategy, will stick to a policy of smaller, gradual rate rises.
There was evidence in the GDP report that price pressures are growing. A price index favoured by Federal Reserve chairman Alan Greenspan - personal consumption spending excluding food and energy products - rose by 2.2%, up from 1.7% in the final quarter of last year.
Growth in consumer spending - which fuels about two-thirds of national economic activity - slowed, with personal consumption expenditures easing to a 3.5% annual rate in the first quarter from 4.2% in the closing quarter last year and from 5.1% in last year's third quarter.
The fall-off in the rate of growth of business investment was more striking, down to a 4.7% annual rate from 14.5% in the final quarter of 2004. Spending on equipment and software grew by 6.9% in the first quarter after an 18.4% surge in the closing months of 2004.
