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US inflation accelerated in January and the economy ended last year on a stronger footing than expected, suggesting America is continuing to shrug off a faltering outlook abroad.

The personal consumption expenditures measure of inflation, stripping out food and energy, accelerated to a year-on-year rate of 1.7 per cent from 1.5 per cent previously, official statistics showed.

Meanwhile growth was unexpectedly revised up to a 1 per cent annualised pace in the fourth quarter from 0.7 per cent, the Commerce Department reported in its second estimate of how the economy performed. A downward revision to 0.4 per cent had been predicted by analysts.

Markets have been fretting about the prospect of a US recession as China stokes confusion about its foreign exchange policies, commodity prices swoon and equity markets gyrate. As a result, traders have been betting the Federal Reserve will stand pat for the remainder of the year, in contrast to Fed forecasts in December that suggested rates might rise as much as an extra percentage point this year.

The problem with the market’s gloomy narrative is that US economic data have remained robust, as Friday’s figures confirmed. A strong jobs market and rising house prices are providing the ballast for an economy that is facing weaker growth overseas, a sharp contraction in its manufacturing sector and retrenchment in the once booming oil industry.

That could give the Federal Reserve the grounds to continue tightening monetary policy this year even as other central banks, such as the European Central Bank and Bank of Japan, loosen policy in a bid to spur economic growth.

The bulk of the surprise revision to GDP was down to companies accumulating stockpiles at a faster pace than estimated in the reading — a typically powerful variable in revisions. Spending by consumers in January rose by 0.5 per cent compared with the prior month, an acceleration from 0.1 per cent previously, suggesting household spending remains on track.

Jim O’Sullivan of High Frequency Economics said the firmer inflation was a sign of less spare capacity in the economy. “While inflation expectations have declined a little, core inflation is showing clear signs of accelerating, consistent with the decline in slack starting to have an effect,” he said.

The dollar strengthened against the common currency and the yen on the report. About 15 minutes after the GDP report, the euro fell by 0.3 per cent against the dollar to 1.0982, while the greenback rose 0.3 per cent against the yen to 113.32.

Paul Ashworth, chief US economist at Capital Economics said: “It still appears that first-quarter GDP growth is on track to rebound to a very healthy 2.5 per cent annualised or higher, which should dampen any concerns about an imminent recession.”

Nevertheless, the global outlook remains relatively gloomy despite the firm US numbers. The International Monetary Fund warned this week that it was likely to downgrade its 3.4 per cent forecast for global growth this year.

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