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http://business.timesonline.co.uk/tol/business/economics/article6101645.ece#
Deflation sparks new fears for American economy
Gary Duncan
Fears that recession will tip the US economy into a destructive bout of Japanese-style deflation grew sharply today after America's headline inflation sank into negative territory for the first time in half a century.
Overall US consumer prices fell by 0.1 per cent last month, leaving them down 0.4 per cent from a year earlier as plummeting consumer demand drove steep drops in food and fuel costs. It marked the first time that the US headline inflation rate has turned negative since 1955.
Coming only a day after President Obama trumpeted “glimmers of hope” for US recovery, and was joined by Ben Bernanke, the Chairman of the Federal Reserve, in talking up prospects, the news dealt a heavy blow to hopes for economic revival.
Economists noted that the US deflation that has just taken hold remains a long way from the pernicious form of the trend suffered by Japan, which sucked the lifeblood from its economy for more than a decade.
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For now, the plunge in American inflation is almost entirely driven by the unwinding of the 18-month surge in oil prices to more than $140 a barrel that ended last summer, rather than by a broader deflationary spiral of tumbling prices and demand. With oil prices now stable at about $50 a barrel, analysts pointed out that while US headline inflation may fall as far as minus 2 per cent later this year, as the recent slump in energy costs in turn drops out of the figures, the inflation rate should rebound into positive territory.
So-called “core” US inflation, excluding volatile food and energy prices, remains firmly positive at 1.8 per cent, although it is expected to slide further.
Despite these reassurances, today's figures still stoked anxieties that a more full-blown form of deflation remains a real danger to the US outlook, despite the cautious but upbeat message from Mr Obama on Tuesday.
Deflationary forces in the US are mounting as slumping demand and soaring unemployment leave a growing overhang of unused capacity and labour. The effects, in stoking competition, will put further heavy downward pressure on prices.
Optimism over recovery was dealt a further blow as output from American factories, mines and utilities dropped by a worse than expected 1.5 per cent last month, matching its February fall, and leaving it 12.8 per cent down from a year before. Manufacturing output dropped by 1.7 per cent, almost treble February's 0.6 per cent fall, while capacity use in industry also fell to a record low of 69.3 per cent.
Deflation sparks new fears for American economy
Gary Duncan
Fears that recession will tip the US economy into a destructive bout of Japanese-style deflation grew sharply today after America's headline inflation sank into negative territory for the first time in half a century.
Overall US consumer prices fell by 0.1 per cent last month, leaving them down 0.4 per cent from a year earlier as plummeting consumer demand drove steep drops in food and fuel costs. It marked the first time that the US headline inflation rate has turned negative since 1955.
Coming only a day after President Obama trumpeted “glimmers of hope” for US recovery, and was joined by Ben Bernanke, the Chairman of the Federal Reserve, in talking up prospects, the news dealt a heavy blow to hopes for economic revival.
Economists noted that the US deflation that has just taken hold remains a long way from the pernicious form of the trend suffered by Japan, which sucked the lifeblood from its economy for more than a decade.
Related Links
For now, the plunge in American inflation is almost entirely driven by the unwinding of the 18-month surge in oil prices to more than $140 a barrel that ended last summer, rather than by a broader deflationary spiral of tumbling prices and demand. With oil prices now stable at about $50 a barrel, analysts pointed out that while US headline inflation may fall as far as minus 2 per cent later this year, as the recent slump in energy costs in turn drops out of the figures, the inflation rate should rebound into positive territory.
So-called “core” US inflation, excluding volatile food and energy prices, remains firmly positive at 1.8 per cent, although it is expected to slide further.
Despite these reassurances, today's figures still stoked anxieties that a more full-blown form of deflation remains a real danger to the US outlook, despite the cautious but upbeat message from Mr Obama on Tuesday.
Deflationary forces in the US are mounting as slumping demand and soaring unemployment leave a growing overhang of unused capacity and labour. The effects, in stoking competition, will put further heavy downward pressure on prices.
Optimism over recovery was dealt a further blow as output from American factories, mines and utilities dropped by a worse than expected 1.5 per cent last month, matching its February fall, and leaving it 12.8 per cent down from a year before. Manufacturing output dropped by 1.7 per cent, almost treble February's 0.6 per cent fall, while capacity use in industry also fell to a record low of 69.3 per cent.
