Lower petrol prices dampen US consumer inflation

Consumer prices fall 0.7% in January, while core capital goods orders rise 0.6%

US consumer prices in January posted their biggest drop since 2008 as gasoline prices continued to tumble and underlying inflation rose modestly, which could allow a cautious Federal Reserve more room to hold off on raising interest rates.

Other data yesterday showed a rebound in business investment spending plans, but probably not enough to change expectations of moderate economic growth in the first quarter.

“It will be some time before the Fed gets the necessary confirmation that inflation will move back to target in the medium-term, and we continue to see September as the most natural starting point for the lift-off in rates,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

The Labour Department said its Consumer Price Index fell 0.7 per cent last month, the largest decline since December 2008, after slipping 0.3 per cent in December. It was the third straight month of decline in the index.

In the 12 months through January, the CPI fell 0.1 per cent, the first decline since October 2009 and a sharp deceleration from December’s 0.8 per cent rise.

Fed officials have long viewed the energy-driven drop in inflation as transitory. The US central bank has a 2 per cent inflation target.

Fed Chair Janet Yellen told lawmakers this week that the central bank’s policy-setting

Drop in CPI in the 12 months to January.

committee “needs to be reasonably confident that over the medium-term inflation will move up toward its 2-per cent objective” before it starts to raise interest rates.

Policymakers could take comfort from a marginal rise in underlying price pressures. The so-called core CPI, which strips out food and energy costs, rose 0.2 per cent in January after edging up 0.1 per cent in December.

Economists, however, believe the effects of lower energy prices and a strong dollar still have to work their way through to the core CPI, which could mean tame readings in the months ahead.

The core CPI was lifted by increases in the cost of shelter, recreation and apparel prices. In the 12 months through January, the core CPI rose 1.6 per cent after a similar gain in December.

Softer global demand and increased shale oil production in the United States have caused an oil glut, causing crude prices to plummet.