US consumer prices up but inflation hits lowest since 1955

February 20th, 2009 - 10:48 pm ICT by IANS  

Washington, Feb 20 (IANS) For the first time since July, consumer prices in the US rose in January even as the year-over-year inflation rate hit its lowest level in more than a half-century, according to official figures released Friday.

The Consumer Price Index, the key measure of prices at the retail level, was up 0.3 percent in January, in line with the consensus forecast of economists surveyed by Briefing.com.

But the index was unchanged from January 2008 levels, the first time that reading has not shown a year-over-year increase since August 1955, when prices were falling on an annual basis.

On an annual basis, the so-called core CPI, which strips out volatile food and energy prices, was up 1.7 percent, the lowest increase in nearly five years. Core prices rose 0.2 percent in January, a bit more than the 0.1 percent rise forecast by economists.

Even though there wasn’t a 12-month decline in CPI, it fell at an 8.4 percent compounded annual rate over the last three months, even with the modest rise in January.

And the core CPI rose at a compounded annual rate of only 0.9 percent over that period, which is below the range of 1 percent to 2 percent annual rise in that closely watched reading that is widely believed to be optimal for economic growth.

With inflation in check, there has been growing concern by some economists that the economy could be hurt by deflation, or the widespread drop in prices, CNNMoney.com said.

Lower prices are one way businesses respond to the lack of demand for their products in a slowdown, it said. But if companies can’t make a profit selling their products at the lower price, they’ll respond by cutting production and laying off more people.

More job losses can cut even further into demand. But even if consumers have jobs and money, they’re likely to hold off on purchases if they come to believe that prices will head even lower. All of which adds up to even more weakness in the economy.

The decline in energy prices was not the only thing keeping inflation in check. Overall weak demand for goods and services due to rising job losses and tight credit kept prices low for a wider range of products.

Products such as clothing, hotels, video and audio entertainment, and cars and trucks were all cheaper than they were in January 2008.

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