US Inflation hit its highest rate in almost three decades in June as American consumers spent tens of billions of dollars of tax rebates and the price of petrol continued to surge.

Inflation jumped by 0.8 per cent in the month of June, the most since February 1981, when prices rose by 1.0 per cent, according to the Commerce Department.

About $80 billion worth of tax rebate cheques were sent out in April, May and June, as part of the government’s plan to stimulate its flagging economy.

The cheques boosted consumer spending by 0.6 per cent in June, down from 0.8 per cent in May. However, adjusted for inflation, spending decreased by 0.2 per cent after rising 0.3 per cent in May.

Although today’s figures indicate that inflation is an greater concern than previously thought, the US Treasury is expected to hold its benchmark interest rate steady at 2 per cent tomorrow because of concerns about the strength of the economy.

Analysts predicted that the economy would slow in the second half of the year as the impact of the rebate cheques subsided.

The prospect of rising inflation and a slowing economy combined with a warning by HSBC that bad loans had increased in America to hit US shares. The Dow Jones industrial average declined by 89.6 points, or 0.6 per cent, to 11,236.8.

Financial shares led the declines, especially those with a large exposure to America’s housing market.

Shares in Wachovia dived by $1.66, or 8.64 per cent, to $17.29 in mid-morning trading. JPMorgan Chase declined by $1.23, or $3.0 per cent, to $39.53. Bank of America fell by $1.50, or 4.50 per cent, to $31.83.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive