The US economy in the second quarter grew at the fastest pace in more than a year as core inflation rose at its slowest pace in four years, the Commerce Department reported today. The department estimated the economy grew at a 3.4 pct annualised rate between April and June, slightly faster than the 3.2 pct economists had expected. The Fed's preferred measure of inflation, the core PCE price index, rose 1.4 pct in the second quarter, down sharply from the 2.4 pct rise in the prior quarter and the slowest pace since the second quarter of 2003. Overall inflation, measured by the PCE price index including the volatile food and energy prices, rose 4.3 pct, the fastest pace in a year. The economy grew at an anaemic 0.6 pct annual rate in the first quarter, which was the slowest quarterly gain in more than four years. "The second quarter bounce partly reflects an offset to weakness in a number of GDP components in the first quarter," said economists at Briefing.com. An increase in inventories, higher exports and a reduced drag on the economy from a weak housing sector contributed to the economy's faster growth. The Commerce Dept. revised downward its estimate for all of 2006, reporting that the economy grew 2.9 pct for the year, slower than 3.3 pct earlier thought. Measuring the second quarter over the prior second quarter, the economy grew at a 1.8 pct pace, compared a 1.5 pct rate in the prior quarter. Over the past 12 months, the overall PCE price index has risen 2.3 pct, while the core PCE price index slowed to a 2.0 pct rise, the very top of the Fed's so-called "comfort zone". The GDP chain-type price index showed 2.7 pct inflation in the economy overall, with a 1.7 pct core rate. Consumer spending, which accounts for as much as two-thirds of the economy, rose 1.3 pct in the second quarter, a major slowdown from the 3.7 pct pace in the first three months of the year. Final sales rose 3.2 pct in the quarter, more than twice the 1.3 pct pace in the prior quarter. The housing slowdown was much less of a drag on the economy in the second quarter, as real residential fixed investment fell 9.3 pct, not as steep as the 16.3 pct drop in the first quarter. Business construction jumped in the second quarter, as real non-residential fixed investment rose 8.1 pct, almost quadruple the 2.1 pct pace in the first quarter. Real exports rose 6.4 pct in the quarter, while real imports fell 2.6 pct.