PRICES IN the US fell in the year to March, marking the first annual decline since 1955 and easing fears that aggressive government stimulus measures could kickstart inflation.
The drop in prices could ease pressure on consumers who have seen their wealth savaged by the economic downturn, but companies remain under severe pressure to cope with eroding demand.
Official figures revealed separately yesterday showed industrial production plunging 12.8 per cent in the year to March, while manufacturing output fell at the fastest rate since the end of the second World War.
Consumer prices were down by 0.4 per cent year-on-year, the US labor department said yesterday.
Last month, prices fell 0.1 per cent owing to weak energy and food prices following two months of increases.
The monthly figure trailed the 0.1 per cent rise economists had expected and compared with a 0.4 per cent increase in February.
The drop in prices could renew fears of deflation, which were stoked after prices were flat or declined during the last five months of 2008.
As the economic recession deepened in the second half of last year, companies slashed prices to clear stocks. However, core prices, which exclude food and energy and are the measure by which economists judge the risk of general deflation, rose by 0.2 per cent and were 1.8 per cent higher than in March 2008.
The resilient core figure, which also rose 0.2 per cent in February, was boosted by tobacco as companies lifted prices ahead of a government tax. “The economy is suffering from disinflation but not outright deflation pressures in the goods and services sectors,” said Alan Ruskin, strategist at RBS Greenwich Capital.
Prices fell across most sectors in March, although the cost of medical care, education and communications rose. Energy prices fell 3 per cent last month after climbing 3.3 per cent in February as the price of petrol dropped 4 per cent in March after rising 8.3 per cent the previous month.
US Federal Reserve chairman Ben Bernanke said on Tuesday that he expected inflation to remain low for “some time” and an annual inflation rate of 2 per cent would be a healthy target.
He noted that as the economy rebounded inflation could again require Fed intervention.
Companies, however, continue to cope with diminished global consumer demand. The Fed said yesterday that US industrial production fell for the fifth month running in March, dropping by 1.5 per cent on weak manufacturing output.
The decline was worse than economists expected and driven by falling production of business equipment and construction supplies.
Manufacturing output has dropped 15 per cent in the past year. Overall, industrial output has declined by an annualised 20 per cent in the first quarter, the sharpest quarterly drop since 1975.
Meanwhile, the proportion of manufacturing capacity not in use fell to 69.3 per cent from a revised 70.3 per cent. The figure was the lowest since 1967, when the Fed began keeping such records.
A bright note yesterday was a sharp lift in housebuilder sentiment this month for the first time in six months, suggesting the stricken US housing market could be levelling out. – (Copyright The Financial Times Limited 2009)
