US consumer prices rose in January as energy costs rebounded, government data showed today, temporarily easing fears of deflation amid a severe economic downturn.
The Labor Department said its closely watched Consumer Price Index rose 0.3 per cent, advancing for the first time since July, after falling 0.8 per cent in December. The increase was bang in line with market expectations.
US stock index futures pared losses after the data, while government bond prices trimmed gains.
Analysts said the rebound in both the headline CPI and producer price index appeared to briefly calm fears about deflation, but the general trend remained one of lower prices as the 13-month old recession worsens.
“This has allayed temporarily fear of heightening deflation,” said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.
Deflation is normally described as a dangerous spiral of falling prices causing economic contraction as consumers hold off purchases in the hopes of even lower prices.
The Federal Reserve said today that most policy-makers at the US central bank want to see inflation in a 1.7 per cent to 2 per cent range over the long haul.
Some officials have hoped announcing what amounts to a target for inflation would help keep any expectations of deflation at bay. If expectations of deflation were to build, they could become self-fulfilling.
On a year-over-year basis, consumer prices were flat, the weakest reading since August 1955. The index rose 0.1 per cent year-on-year in December.
Core prices, which exclude food and energy items, rose 0.2 per cent after being flat in December. That compared to analysts' prediction for a 0.1 per cent increase. On a year-over-year basis, core CPI was up 1.7 per cent.
Analysts said the January inflation figures had probably been distorted by seasonal factors.
Reuters