US economic growth braked sharply in the first quarter as higher food and petrol prices dampened consumer spending, and sent a broad measure of inflation rising at its fastest pace in 2.5 years.
Another report showed a surprise rise in the number of Americans claiming unemployment benefits last week, which could cast a shadow on expectations for a significant pick-up in output in the second quarter.
Growth in gross domestic product -- a measure of all goods and services produced within US borders - slowed 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 2 per cent growth pace.
Output was also restrained by harsh winter weather, rising imports as well as the weakest government spending in more than 27 years.
Initial claims for state unemployment benefits jumped 25,000 to a seasonally adjusted 429,000, the Labor Department said. Economists had expected claims to slip to 392,000.
US government debt prices rose after the data, while stock index futures added to losses. The dollar extended losses
against the yen and the euro.
The Federal Reserve on Wednesday acknowledged the slowdown in first-quarter growth, 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 between 3.1 and 3.3 per cent from a 3.4 to 3.9 per cent January projection.
The US central bank signalled it was in no rush to start withdrawing the massive monetary stimulus it has lent the economy. It confirmed plans to complete its $600 billion bond buying program 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 4 percent gain in the final three months of 2010.
Rising commodity prices meant the consumers, which 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 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 2 per cent.
Reuters
