Economic growth in the United States surged to an annual rate of 4.8 per cent in the first quarter, its best performance in more than two years, the US Commerce Department said today.

The strong figures, which were in line with expectations, suggested a snap back from a weak forth quarter, when GDP rose by 1.7 per cent as the world’s largest economy grappled with the after-effects of Hurricane Katrina, which hit the Mexican Gulf in August.

The strong rise in GDP in the first three months of the year came on the back of higher personal spending, equipment and software expenditure, exports and federal government spending.

The data follows comments from Ben Bernanke, the Federal Reserve chairman, who said yesterday that the American economy risked slowing later this year as the buoyant property market cools. He also hinted that the US central bank could pause on its long campaign of rate hikes.

The core consumer price index of inflation, which strips out food and energy factors, today fell to a 2 per cent annual rate, from 2.4 per cent. The year-on-year figure fell to 1.9 per cent, just below the top of the Federal Reserve's target range.

Separately, the US Labor Department said employment costs rose at the slowest pace in seven years during the first quarter. The reduced pace of wages and benefits costs to employers should temper concerns over US inflation.

US GDP rose to $13.02 trillion on an annualised basis.

Household spending jumped 5.5 per cent, compared with a rise of just 0.9 percent in the previous quarter. Purchases of durable goods, such as cars and washing machines, rocketed 20.6 per cent.

Government spending was up 10.8 per cent, owing to more expenditure in Iraq and on post-Katrina reconstruction.

Companies accelerated their investment to a growth rate of 14.3 per cent but also drove up their inventories, a possible sign of waning demand ahead, which subtracted 0.52 points from the overall GDP figure.

Real final sales of domestic product - GDP minus changes in private inventories - increased 5.4 per cent in the first quarter, in contrast to a decrease of 0.2 percent in the fourth.

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