Wednesday, April 15, 2009

“The economy is suffering from disinflation but not outright deflation pressures in the goods and services sectors,”

TO BE NOTED: From the FT:

US prices drop for first time since 1955

By Alan Rappeport in New York

Published: April 15 2009 14:19 | Last updated: April 15 2009 14:47

Prices in the US declined in the year to March for the first time since 1955, the labour department said on Wednesday, easing fears that aggressive government stimulus measures could kick-start inflation.

The 0.1 per cent monthly decline in March was largely due to falling energy prices and was the first fall after two months of increases. Consumer prices were down by 0.4 per cent year-on-year.

The monthly figure trailed the 0.1 per cent rise that economists had forecast and compared with a 0.4 per cent increase in February.

The drop in prices could renew fears of a deflationary trap that were stoked after prices were flat or declined during the final 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 is 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. Core prices also rose by 0.2 per cent in February.

“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.

Energy prices fell by 3 per cent last month after climbing by 3.3 per cent in February. Prices of energy were pulled back by falling petrol prices which were off by 4 per cent in March after rising by 8.3 during the previous month.

Prices fell across most sectors last month, while the cost of medical care, education and communication rose in March.

The slide in consumer prices follows a report on Tuesday that US wholesale prices fell in March after two months of gains due to falling energy prices. The producer price index for finished goods fell by 1.1 per cent last month, trailing economists forecasts that prices would be flat.

Compared with March 2008, wholesale prices were down by 3.5 per cent.

The decline was due to a 13.1 per cent drop in petrol prices. Excluding food and energy, core producer prices were flat last month. Weak capital spending also blunted any inflation as business investment has stalled amid diminished demand.

Separately on Wednesday the Federal Reserve said that US industrial production fell for the fifth month running in March, dropping by 1.5 per cent on weak factory and manufacturing output as global demand has continued to erode.

The monthly decline was worse than economists expected and was driven by falling production of business equipment and construction supplies. Industrial output was off by 12.8 per cent compared with the same month in the prior year.

Economists expected industrial production would fall by 0.9 per cent last month after a 1.4 per cent decline in February. Output has declined in 11 out of the last 13 months.

Utility output rose by 1.8 per cent in February after a 7.7 per cent drop the prior month, as cold temperatures replaced unseasonably mild weather. Mining output was off by 3.2 per cent.

Meanwhile, the capacity utilisation rate, a measure of the proportion of plants in use, across all industries, fell to 69.3 from a revised 70.3 per cent. The figure was lowest since 1967, when the Federal Reserve began keeping such records.

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