Bernanke dismisses oil price threat as US recovery rolls on

SOARING oil prices pose only a “temporary” threat to inflation, Federal Reserve chairman Ben Bernanke said yesterday.

The dollar, tumbling to a three and a half month low against the euro, received little support from Bernanke’s testimony to the Senate’s banking committee, in which he showed no inclination of a move towards monetary tightening.

“The tone of his remarks suggest that the turn in the rate regime is distant, and still likely more distant than what the market is now expecting,” said Eric Green of TD Securities.

However, Bernanke also said the threat of deflation is now “negligible.”

His testimony coincided with the release of the latest ISM manufacturing index, which delivered more positive news for the US recovery.

America’s factory sector shot up to 61.4 in the index last month -- its highest level since May 2004, and up from 60.8 in January.

The ISM index showed an increase in prices paid for goods to a two and a half year high of 82, from 81.5 in January.

“However, this index follows the oil price and tells us very little about the ability of firms to pass higher costs on,” said Paul Dales of Capital Economics.

There was bad news from the US construction industry, meanwhile, with spending in the industry down 0.7 per cent in January.