The US economy increased moderately in the firs half of this year amid difficulties such as the soaring oil prices and the increasing pressure of inflation. And almost all economists predicted that it will continue to grow at a solid pace.  

The biggest challenge facing the US economy this year is the continuing increase in world oil prices. The world petroleum prices hit many records since the beginning of this year and are now hovering at about US$60 a barrel. There is no doubt that it has hindered the pace of the US economy although not as seriously as some analysts had expected.

The inflation pressure has also been growing in the past six months partly as a result of the hiking oil prices. The consumer price index (CPI) in the first five month this year increased at an annual rate of 3.7 percent, compared with 3.3 percent in 2004, with the oil-based energy price soaring at a rate of 27.4 percent, according to the latest report released by the US Labor Department.

Meanwhile, the so-called "core" CPI -- prices excluding volatile areas of energy and food -- also rose by 2.4 percent in the first five months compared with 2.2 percent last year.

Seeing the risk of a growing pressure of inflation, the US Federal Reserve (Fed) raised the short-term interest rate at its four policy-making meetings in the first half of this year with the same pace of 0.25 percentage points, pushing the US federal fund rate to 3.25 percent at the end of last month from 2.25 percent at the start of this year.

The difficulties and monetary measures have resulted in a slowdown of the US economy in the past two quarters. The government report showed that the economy grew at an annual rate of 3.8 percent in the first quarter of this year, compared with 4.4 percent last year, the fastest pace in the past several years.

Personal consumer spending, which accounts for about two-thirds of the US gross domestic product (GDP) and is the major engine of the economy, increased at an annual rate of 3.6 percent in the first three months compared with 4.2 percent in the last quarter of last year.

Many analysts are predicting that the US economic growth will slow down to about 3.5 percent in the second quarter.

Meanwhile, the US Fed seems happy to see the economy growing at a slower pace that will reduce the pressure of inflation.

"The US economy seems to be on a reasonably firm footing, and underlying inflation remains contained," Fed Chairman Alan Greenspan said in his semi-annual testimony to the congressional Joint Economic Committee early last month.

He said the US economy has "alternately paused and quickened" this year but a recent uptick in economic indicators showed the soft readings of the early spring were not signaling a more serious slowdown in the pace of the economic activity.

The White House is also not worrying about the economy at a time of soaring oil prices. The Council on Economic Advisers of the White House said in its latest economic forecast issued in June that economic growth is expected to slow down during 2005 and 2006.

With rising energy prices, the forecast said the inflation in the country is expected to rise to 2.3 percent for 2005, and drop to 2.1 percent next year. The jobless rate is also expected to go down slowly this year and next year.

The soaring oil prices will continue to slow down the US economic growth but the impact of the high oil prices on the economy should not be overestimated, analysts said. The US economic growth will not plunge sharply unless there is a serious and long-time disruption of foreign oil supply to the US.

The real risks to the US economic growth are within the economy itself such as the high budget deficit and the trade deficit as well as the bubble in the US housing market. They are posing a growing threat to the economic growth in a longer term, they warned.

(Xinhua News Agency July 13, 2005)