US consumer prices fall

US motorists paid less for petrol last month

Prices paid by US shoppers have recorded their largest fall in 15 years, helped lower by sliding fuel costs, official data has revealed.

US consumer prices eased 0.3% last month, the first fall since April last year, and the largest since April 1986, the US Labor Department has said.

The slide, which was larger than Wall Street analysts had forecast, was led by an 11% decline in petrol prices, with prices outside energy and food markets showing a small rise.

But while the report indicated good news for shoppers, it spooked US investors, who feared that the data could herald the onset of deflation.

Deflation fears

Deflation, in which prices show sustained falls, is viewed with concern because of the incentive it gives consumers to delay spending, so worsening an economic slowdown.

"Deflation... means down the road everything will go down, including raw material prices and eventually corporate profits," a New York dealer said.

While other observers pointed out that the report signalled low inflation, making another cut in interest rates more likely, optimists were initially unable to lift stock market gloom.

Both the broad-ranging Dow Jones industrial average and tech-heavy Nasdaq indices spent most of the trading day in negative territory.

Traders credited bargain hunting investors for a late rally in shares in both technology and traditional industry sectors.

Positive reports

Analysts viewed as better news a separate Labor Department report showing that the number of Americans claiming unemployment benefit fell by 8,000 last week, to a seasonally adjusted 380,000.

The decrease bought the four-week average of claims, a less volatile measure regarded as a more accurate indicator, to its lowest point for five months.

Housing starts also rose last month, by 2.8% to 1.67 million, the highest figure for 18 months.

But the well-received data was unable to overcome the gloom surrounding consumer prices, and the fall in the dollar against major currencies.

"There is a sense that people will have nowhere to put their money," a trader said.

Key meeting

The Federal Reserve, the US central bank, is set on Tuesday to hold its latest monthly meeting to decide over interest rates.

The Fed has already cut rates six times this year, by a total of 2.75%, in an effort to prop up the ailing US economy.

Inflation is expected to stay subdued for the rest of the year as, because of a fall in global demand, energy prices come of their highs of earlier this year. In January, inflation jumped by 0.6%.

Consumer prices have increased at an annual rate of 2.8% so far this year, compared with an increase of 3.4% during 2000.