US consumer prices fall bolstering low rates view

US consumer prices unexpectedly fell in April, the first decline in a year, and the core annual rate recorded its smallest gain since 1966, suggesting scope for the Federal Reserve to keep interest rates near zero for some time.

The Labour Department yesterday said its seasonally adjusted Consumer Price Index slipped 0.1 per cent, pulled down by a decline in energy costs, after a 0.1 per cent gain in March.

Analysts polled by Reuters had forecast consumer prices up 0.1 per cent in April. In the 12 months through April, prices increased 2.2 per cent.

“The latest CPI data confirms that the Fed has a free hand to concentrate on growth and can extend the ‘extended period’ language,” said Alan Ruskin, head of currency strategy at RBS Global Banking & Markets in Stamford, Connecticut.

US stock index futures briefly pared losses on the report. Treasury debt prices trimmed losses and the US dollar held at weaker levels against the yen.

Energy costs fell 1.4 per cent in April, the largest decline since March 2009. Petrol costs fell 2.4 per cent last month, also the biggest fall since March 2009, after dipping 0.8 per cent in March. The drop in petrol eclipsed the 0.2 per cent gain in food prices.