A New York City taxi driver fills his taxi with petrol at a service station in New York.
WASHINGTON: A sharp drop in petrol costs led US consumer prices to tumble in April by the most in over four years, while a gauge of underlying inflation was so weak it could worry the US Federal Reserve.
The Labour Department yesterday said its Consumer Price Index slipped 0.4 percent, the biggest decline since December 2008 when America was suffering some of the darkest days of its financial crisis.
Analysts had expected a more modest 0.2 percent decline in last month’s prices.
The signs of muted inflation pressures could bolster the case for the Fed to remain on its very easy monetary policy path, despite divisions among policymakers over money printing to buy bonds. In the 12 months through April, consumer prices rose 1.1 percent. That is well below the Fed’s 2 percent inflation goal. The US central bank targets a different gauge of prices that tends to run cooler than the Labour Department’s index.
Much of April’s decline in prices was fuelled by an 8.1 percent dive in petrol costs, the biggest decline since December 2008.
However, the weakness in the index also extended to a measure of underlying inflation that strips out volatile energy and food prices.
That gauge rose just 0.1 percent, and was up only 1.7 percent from a year earlier. Apparel prices dropped 0.3 percent.
The annual reading for core inflation was at its lowest since June 2011 and could stoke concerns over cooling demand in the US economy, or perhaps even the risk of outright deflation.
Most economists and investors don’t think deflation is very likely for America in the coming years, but it would be a central banker’s nightmare. Deflation involves spiraling declines in prices and wages and is difficult for policymakers to combat.
Other data yesterday showed a spike in new claims for jobless benefits last week as well as soft underlying inflation that could point to weak demand in the economy.
“We are seeing a soft start for growth in the second quarter,” said Sam Bullard, an economist at Wells Fargo in Charlotte, North Carolina. Reuters
