The US economy has battened down the hatches and weathered recent storms - figurative and literal.

The Federal Reserve's latest economic survey reports that despite the lashing by hurricanes Katrina and Rita: "Economic activity continued to expand . . . Most districts described the pace of activity as moderate or gradual."

The storm damage along the Gulf Coast affected oil production, leading to higher prices for gasoline and fuel, which in turn has hiked retail prices for consumers.

The spectre of inflation has led to economists' predictions that the Fed will raise short-term interest rates another quarter percentage point to 4% at next month's meeting.

The survey says: "Chicago cited price increases for pharmaceuticals and air travel. In Richmond and Atlanta, retailers and other business firms reported passing their cost increases through into their selling prices, and in Philadelphia and Dallas, large numbers of business firms said they have raised, or plan to raise their prices."

Analysts believe the hurricane effect will reduce economic growth through the rest of the year by as much as one percent. But it will only slow US economic expansion, not derail it.

Data sourced from USA Today Online; additional content by WARC staff