US consumer prices fell for the first time in a year last month and the closely watched core inflation rate posted its smallest annual gain since 1966, pointing to a lack of price pressure as the economic recovery gathers steam.
The Consumer Price Index (CPI) unexpectedly slipped 0.1 percent last month, the Labor Department said on Wednesday, which analysts said should allow the US Federal Reserve to focus on supporting growth, especially as Europe’s debt crisis looks set to slow economies in that region.
SLOW RECOVERY
An industry report released separately showed demand for loans to buy homes sank 27.1 percent to a 13-year low last week after the expiry of a home buyers tax credit, suggesting a recovery in housing will be painfully slow.
“The inflation picture is very well controlled and that’s going to give the Fed an opportunity to stay accommodative for a longer period of time. It’s a good environment to help keep the economy here growing,” said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut.
DECLINING COSTS
Last month’s CPI was pulled down by declining energy costs. Consumer prices rose 0.1 percent in March and analysts had expected a similar gain last month.
The core inflation rate, which excludes volatile food and energy costs, was flat last month. Over the past 12 months, core inflation has risen just 0.9 percent, the smallest gain in more than 44 years.
The Fed cut benchmark overnight lending rates to near zero in December 2008 and has vowed to keep them extraordinarily low for an “extended period” to nurse the economy back from its worst downturn since the 1930s.
NOT A RISK
Minutes of the Fed’s policy meeting last month, released on Wednesday, indicated the US central bank does not see inflation as a near-term risk.
While the economy has grown for three straight quarters and employers have added jobs for four months in a row, the unemployment rate stands at 9.9 percent.
UNEMPLOYMENT
Analysts said with unemployment still stubbornly high, inflation was likely to remain muted for a while and some even saw the risk of deflation — an economically disabling, broad-based decline in consumer prices.
“Elevated unemployment and stagnant wages have caused retail chains to slash prices and firms have chosen to absorb increasing costs at earlier stages of production rather than pass them along downstream,” said Joseph Brusuelas, chief economist at Brusuelas Analytics in Stamford, Connecticut.
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