Overall prices in the US economy registered their first year-on-year fall for more than half a century today, fuelling fears that the American economic slump could tip the world’s biggest economy into a destructive bout of Japanese-style deflation.
US consumer prices fell by 0.1 per cent last month, leaving them down by 0.4 per cent compared with their level a year before, as plummeting consumer demand in America and worldwide drove steep falls in the cost of food and energy. It was the first time that US headline inflation has recorded a negative annual rate since 1955.
America’s slide into deflationary territory was propelled by a 3 per cent fall in energy costs last month and aggravated by a 0.2 per cent monthly fall in the cost of clothing, while airfares plunged by 2.3 per cent.
The figures fulfilled widespread prediction on Wall Street that the US economy would experience a period of deflation this year.
But coming just a day after President Obama trumpeted “glimmers of hope” for a US recovery, and was joined by Ben Bernanke, Chairman of the Federal Reserve, in talking up US prospects, the news nevertheless dealt a blow to hopes that America could be on course for economic revival by the end of the year.
Deflationary forces in the US are mounting as slumping demand and soaring unemployment leave a growing overhang of unused capacity and labour. The impact in stoking competition will put further heavy downward pressure on prices.