US inflation in largest annual fall since 1955

The US Labor Department has announced today that US consumer prices remained unchanged in April - in line with expectations.

However, on an annualised basis, inflation fell 0.7% on April last year - the steepest decline in 54 years.

Core prices, excluding energy and food, rose by 0.3% in April compared with March, which was more than expected, this was boosted by a sharp increase in federal tobacco taxes on 1 April.

There have been fears that the recession in the US may lead to a prolonged period of falling prices - known as deflation.

A short period of deflation (where prices fall rather than increase) could be a serious threat to the economy because it deters consumers and businesses from spending in expectation of falling prices

Paul Ashworth, of Capital Economics, said: “We still expect core inflation to moderate sharply in the second half of this year and through 2010.”

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