U.S. Deflation Grabs Headlines as Oil Prices Tumble

In January, the U.S. Consumer Price Index fell into negative territory for the first time since 2009.

Falling oil prices were the main driver.

Here's an excerpt from the Los Angeles Times (Feb. 26):

The CPI sank 0.7% in January from December, and the annual rate of inflation fell 0.1%, technically putting the economy into deflation. The Bureau of Labor Statistics said the decline was driven "overwhelmingly" by gasoline prices, which plunged 18.7% in January from December.

Some analysts believe the U.S. CPI's dip into negative territory is temporary.

Read this excerpt from the Telegraph (Feb. 26):

Paul Ashworth, chief US economist at Capital Economics, said that for the US "this deflation is nothing to worry about".

"There is little danger that this temporary bout of falling energy prices will develop into a more insidious debt-deflation spiral," he added.

In her testimony to Congress this week, Janet Yellen, chair of the Fed, said that the central bank's monetary policy stance should help too bost inflation, after it "has fallen to very low levels".

She continued: "Despite the very low recent readings on actual inflation, inflation expectations as measured in a range of surveys of households and professional forecasters have thus far remained stable."

The fall in inflation means that the US has now joined the eurozone in deflationary territory. The currency bloc entered deflation in December, while recent figures have shown that prices fell even more swiftly in January.

Economists believe that 2015 may be the first year since before WWII that inflation will fall below 2pc across the advanced countries which make up the G7.

Analysts stressed that the "core" measure of inflation - which attempts to strip out the more volatile components of the measure - was stronger than expected.

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