A plunge in energy costs pulled US consumer prices down 0.1 per cent in May, the first drop in 10 months, according to a government report today that suggested inflation pressures were under wraps.
Excluding volatile food and energy prices, the core consumer price index rose by a smaller-than-expected 0.1 per cent last month after a flat reading in April, the Labor Department said.
Wall Street economists had expected consumer prices to hold steady with a rise of 0.2 per cent outside food and energy. Separately, the Commerce Department said US business inventories grew 0.3 per cent in April as sales rose 1.2 percent.
At that sales rate, it would take only 1.30 months to empty stockpiles, matching a record low hit last year.
Prices for US government bonds and stock futures rose on the apparent lack of inflation pressure, while the dollar was little changed as traders saw the report as putting no pressure on the Federal Reserve to change tack on interest rates. "The Fed has a fairly sanguine view on inflation and this will certainly confirm that view," said Rick Egelton, chief economist at BMO Financial Group in Toronto.
"It continues to give the Fed lots of room to maneuver." Energy prices fell 2 per cent last month, the largest drop since July 2004 and the first since January.
The energy decline helped moderate the 12-month increase in consumer prices to 2.8 per cent after a more worrying 3.5 per cent gain in the period ended in April. The cost of gasoline plummeted 4.4 per cent in May, fuel oil declined 2.3 per cent and natural gas prices edged down 0.2 per cent.
Food prices rose 0.1 per cent. Some of the energy-driven relief could prove short-lived, however, since crude oil prices have bounced back above $55 a barrel after having dipped below $47 last month. Outside those volatile areas, price gains were mostly mild, leaving the 12-month change in core consumer prices steady at an increase of 2.2 percent.