U.S. economy: new inflation warning

The U.S. economy received another inflation warning on Wednesday, when a survey of industry executives showed that energy costs drove prices higher in September while business activity slowed in the services sector.

The report reinforced expectations that the Federal Reserve would continue to raise rates as the economy struggles with rising fuel costs aggravated by Hurricane Katrina, the AP reports.

The Institute of Supply Management, which conducted the survey, said its non-manufacturing business activity index was at 53.3 percent in September, down from August's reading of 65 percent. The group's index of prices paid rose 14.3 points to 81.4 percent, the highest level and the biggest jump for the index in the eight-year history of the report.

The survey, whose results chipped away at broader Wall Street stock indexes on Wednesday, found that many business executives are concerned about the continuing rise in oil and gas prices after Hurricane Katrina and about the toll rising energy costs will take on the economy.

While the survey uncovered worries about energy prices, economists cautioned that some of its findings may have been exaggerated by the major storm.

Dallas Federal Reserve Bank President Robert Fisher warned Tuesday inflation was nearing the high end of the Fed's comfort zone _ a clear signal that the Fed's short term interest rate hikes would continue.

Hurricane Katrina not only ravaged numerous facilities involved in the production and delivery of oil, it also promises to create supply shortages because of goods being delivered to the stricken region. AM

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