Core US Inflation Falls to Record Low

Living costs in the US have been held down by a weakened economy in the past year, with prices for most goods and services recording their smallest annual rises on record in October.

Signs of weak inflation will buttress the argument made by the Federal Reserve that it has leeway to engage in more quantitative easing without causing prices to overheat. Critics of the Fed have argued that the central bank is putting the US economy at risk by using unconventional measures to stimulate growth.

Labour department figures showed on November 17 that the core” consumer price index, measuring prices for US goods and services excluding food and energy, rose just 0.6 per cent year on year in October. That was weaker than economists had expected and marked the smallest such increase since records began in 1957.

From September to October, core prices remained unchanged for the third consecutive month. Falling prices for cars, trucks and clothes kept costs in check as businesses were forced to offer deep discounts to clear inventory.

Overall, the CPI rose by 0.2 per cent in October and was up 1.2 per cent compared with the same month a year ago. The rise was fueled by a 2.6 per cent monthly increase in energy costs, which have been inflated by higher petrol prices.

Adding to price pressures was a tepid increase in housing costs. Rents account for about 40 per cent of the CPI and only rose by 0.1 per cent in October.

Core US Inflation Falls to Record Low, FT
11/17/2010 2:59:54 PM