Consumer prices in the U.S. fell 0.1% in April as energy, housing, auto and apparel prices declined, the Labor Department reported Wednesday.
It was the first monthly decline in the consumer price index since March 2009. The consumer price index is up 2.2% in the last year.
The core CPI, which excludes food and energy prices to get a better view of underlying inflation, was unchanged in April, lowering the year-over-year increase in core inflation to 0.9%, the lowest rate since January 1966.
"Disinflation is firmly entrenched in the U.S. economy, a big plus for debt markets, and a positive for equities too — provided we don't slip into deflation," wrote Sal Guatieri, an economist with BMO Capital Markets.
The inflation numbers were better than expected. Economists surveyed by MarketWatch nailed the 0.1% drop in the headline CPI, but they were expecting a 0.1% gain in the core rate.
The CPI report showed few inflationary pressures in the economy, and should give a green light to the Federal Reserve to worry more about slow economic growth and fragile financial markets and less about inflation. With unemployment near 10% and so much idle capacity in factories, offices and stores, economists believe powerful disinflationary forces still are at work, at least in the medium term.
"The speed of disinflation is now alarmingly rapid, and it adds weight to our long-held view that the U.S. will come perilously close to deflation over the next year or so," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics.
But others say deflation is not in the cards. "Since the housing market appears to be showing signs of some tentative stabilization, rental markets are firming and hotel rates have started to climb, shelter costs should soon begin to level off," wrote David Greenlaw and Ted Wieseman, economists at Morgan Stanley. "The likelihood of any meaningful deceleration in underlying price pressures going forward from here seems quite limited despite a still-wide output gap."
Nutting writes for MarketWatch/McClatchy.