US consumer prices rise reducing fears of deflation

In January US consumer prices rose for the first time in 6 months due to the rise of energy costs which has cooled down heightened talk of the threat of deflation in the face of recession.

According to the Labor Department the consumer price index (CPI) rose 0.3 percent after a 0.8 percent fall in December, although the change can be attributed to the fact that retailers have been discounting heavily in order to increase sales

Core prices are up 0.2 per cent and companies have reined back some of the heavy discounts that were on offer prior to Christmas, which has meant that annual inflation has fallen from 0.1 per cent to zero, although it has averted the negativity of deflation.

The accuracy of the CPI January figures is still being questioned by many analysts because many US companies have used a variety of methods in order to attract customers, which include passing price increases on to customers at the start of the year and so the current index may not be a true and fair representation of prices.

Despite this Paul Ashworth of Capital Economics has said that even though there has been an increase in the CPI, he predicts that inflation will fall to -2.5 per cent in a few months time.

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