US economic growth lagged expectations in the fourth quarter as spending by US firms declined.
The advanced official estimate of US GDP showed the economy grew at a 2.6% pace in the fourth quarter, behind economists´ forecasts of 3%.
It marks a deceleration from the 3.2% rate growth recorded in the prior quarter.
“The deceleration in real GDP growth in the fourth quarter reflected a downturn in private inventory investment that was partly offset by accelerations in PCE, exports, non-residential fixed investment, state and local government spending, and federal government spending, and an upturn in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, turned up,” said the US Department of Commerce´s Bureau of Economic Analysis.
Inflation picks up
However, the price index for US gross domestic purchases increased 2.5% in the fourth quarter, a marked increase from the 1.7% of the third quarter. Meanwhile, the personal consumer expenditure (PCE) price index increased 2.8%, compared with a rise of 1.5% in the earlier period. Excluding food and energy prices, the PCE price index increased 1.9%, compared with a prior increase of 1.3%.
Currency markets reacted to the signs of higher inflation by pushing up the US dollar against the euro in the immediate aftermath of the data release.
Higher inflation makes it more likely the Federal Reserve will adopt an increasingly hawkish stance to rate setting.
While the euro gave back some of the gains it made against the dollar earlier on Friday, the single currency was still up by 0.25% against the dollar on the session as at 1350 GMT.