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Sunday 21st of February 2010
February 19, 2010    

US consumer prices up 0.2% in January

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by Kay Murchie

Official data has revealed US consumer prices rose by a slower-than-expected 0.2% in January.

On an annual basis, prices were up 2.6% - also below expectations.

The increase was the result of a hike in energy prices, which rose for the ninth month in a row. Over the last year, energy prices have soared 19.1%, said the Labor Department.

Meanwhile, excluding volatile energy and food prices, the closely monitored core measure of consumer inflation fell 0.1% in January - the first drop since December 1982.

Chairman of the US Federal Reserve, Ben Bernanke, said last week that the central bank expects economic conditions, including “subdued inflation trends,” that may warrant an “exceptionally low” benchmark interest rate “for an extended period.”

Minutes of last month’s policymakers meeting said underlying inflation was subdued and “was likely to remain so for some time”.

In related news, the Fed stunned markets last night by raising its discount rate (the interest rate it charges banks for emergency loans) by 25bps to 0.75%.

The news sent the pound down to its lowest level against the US dollar in nine months, while Asian equity markets reacted cautiously as they digested the news.

Furthermore, the euro also plummeted to a nine-month low.

The Fed said its decision came “in light of continued improvement in financial market conditions” but said the changes “do not signal any change in the outlook for the economy or for monetary policy”.

However, many saw it as withdrawing from stimulus measures, which many Governments introduced to bring their economies out of recession.

Earlier this week, the Fed said economic growth will be between 2.8% and 3.5% in 2010 - better than its previous forecast of 2.5% to 3.5%.

However, the Fed has warned that despite strong growth for this year, unemployment will remain high.

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