Friday, 15 May 2009 10:23
By Lucia Mutikani and Emily Kaiser Reuters
WASHINGTON (Reuters) - U.S. consumer prices were unchanged in April from March and industrial output declined at a slower pace, reports showed on Friday, providing more evidence that the worst phase of the recession may be over.
The Labor Department said its closely watched Consumer Price Index was flat, as expected, after falling 0.1 percent in March. Compared to the same period last year, consumer prices fell 0.7 percent, the biggest 12-month decline since June 1955. In March, the year-over-year CPI rate fell 0.4 percent.
"The bears are going to look at this and say we have deflation on the way and a decelerating economy, but I don't think that's the case. I think this will be viewed as a healthy contraction that will lead to a sustainable recovery," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.
U.S. stocks were mixed in early trading while prices for U.S. government debt prices fell as investors grew more confident that the economy was stabilizing after back-to-back quarters of sharp contractions.
A separate report from the Federal Reserve showed U.S. industrial production fell 0.5 percent last month, a sixth consecutive monthly decline but at a more modest pace than in recent months. Economists had been looking for output to slide 0.6 percent drop. A month earlier, output fell by 1.7 percent.
The capacity utilization rate for total industry, a measure of slack in the economy, fell to 69.1 percent in April, the lowest level on records dating back to 1967.
Adding to the somewhat-less-gloomy picture, the New York Federal Reserve's index of manufacturing business conditions in New York State climbed to minus 4.55 in May, its highest since August 2008. That was a month before the bankruptcy of Lehman Brothers ushered in a much deeper global economic slump.
All together, the figures provided more signs that the pace of recession may be easing. The current downturn, which began in December 2007, is already the longest since World War Two.
INFLATION OR DEFLATION
Subdued consumer demand as rising unemployment erodes household incomes and general slack in the economy have robbed companies of pricing power, keeping inflation low and heightening concerns about a dangerous downward price spiral.
The CPI report offered something to think about both for those who are worried about falling prices and those who are concerned about the risk of inflation as a flood of stimulus money flows through the economy.
The Fed, which has pumped more than $1 trillion into the economy in a bid to break its downward spiral, is worried about deflation although it sees the risks as diminishing.
While the headline inflation figure was flat, and economists widely expect negative readings later this year, core prices, which exclude food and energy items, rose a faster-than-expected 0.3 percent. That was driven largely by a second consecutive large gain in the cost of tobacco as a government excise tax went into effect.