(Reuters) – U.S. consumer prices fell over the past year for the first time since 2009 as gasoline prices continued to tumble, which could allow a cautious Federal Reserve more room to hold off on raising interest rates.
Other data on Thursday showed a rebound in business investment spending plans and a steadily firming labor market, suggesting the move into deflation territory would be brief. In addition, gasoline prices have been rising in recent weeks.
“We believe the Fed will wait until September before achieving liftoff on interest rates and, even then, the process of normalization will move at a glacial pace,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.
The Labor Department said its Consumer Price Index fell 0.1 percent in the 12 months through January, the first decline since October 2009 and a sharp deceleration from December’s 0.8 percent rise.
The CPI dropped 0.7 percent from December, the largest fall since December 2008. It had slipped 0.3 percent in the prior month.
U.S. stocks were trading marginally lower, while prices for the longer-dated 30-year bond rose. The dollar rose against a basket of currencies.
Fed officials, who have long viewed the energy-driven drop in inflation as transitory, could take comfort from a rise in underlying price pressures last month.
The U.S. central bank has a 2 percent inflation target and tracks a price measure that is running even lower than the CPI.
Fed Chair Janet Yellen told lawmakers this week that the central bank’s policy-setting committee “needs to be reasonably confident that over the medium-term inflation will move up toward its 2-percent objective” before it starts to raise interest rates.
The so-called core CPI, which strips out food and energy costs, rose 0.2 percent last month after December’s 0.1 percent pain. Economists, however, believe the effects of lower energy prices and a strong dollar still have to work their way through to the core CPI, which could mean tame readings ahead.