Consumer prices rose last month by 0.2%, in line with analysts' forecasts, despite a sharp rise in energy prices, government figures have revealed.

It gives the Federal Reserve leeway, because of low inflation, to cut interest rates further if necessary

Jay Bryson, Wachovia Bank

The data confirmed that inflation would allow the Federal Reserve, the US central bank, to keep interest rates at a 40-year low of 1.75%.

Indeed, prospects of a rate cut rose after separate data showed that the US deficit in trade jumped by almost 10% in August.

The rise was blamed on the first fall in exports for six months, a drop some economists said paved the way for a rate cut to support business.

'Benign' inflation

The 0.2% rise in prices for September followed a 0.3% increase in August and a 0.1% lift in July.

This didn't show an upturn in core CPI inflation that might alleviate existing concerns regarding price deflation in certain product categories

John Lonski, Moody's Investors Service

Energy prices showed the biggest gain, rising 0.7% as the ongoing possibility of an attack on Iraq raised oil prices.

Clothing prices were up just 0.1%, while education costs slipped 0.2%.

Jay Bryson, global economist at Wachovia Bank in Charlotte, said: "The inflation numbers are benign, and are nothing to get worried about."

Widening trade gap

Economists had not been expecting the 9.7% rise in the international trade deficit between July and August, from $35.1bn to $38.5bn.

Expectations were for a gap of around $35.6bn.

"It is clearly indicative of the global imbalance of the US being too heavily the growth engine," said Eric Nickerson, chief currency strategist at Bank of America.

The lift was driven by high demand for foreign consumer goods, such as pharmaceuticals, furniture and household appliances, which lifted imports to their highest level since March 2001.

The cost of oil imports was also up, from $6.8bn to $7.33bn, as prices hit their highest levels since December 2000.

US exports were down 1.3% in August, with core categories such as cars, foods and consumer goods all falling.

Jay Bryson said: "The trade deficit was a surprise.

"It gives the Federal Reserve leeway, because of low inflation, to cut interest rates further if necessary."