U.S. consumer prices fell in March and recorded their first 12-month drop since 1955, government data showed on Wednesday, as slumping demand amid a severe recession pushed down energy and food costs.
The Labor Department said its closely watched Consumer Price Index fell 0.1 percent, after increasing 0.4 percent in February. On a year-over-year basis, consumer prices dived 0.4 percent, the first 12-month decline since August 1955.
"The numbers speak to an economy that is in deep recession, but we're no longer in the shock mode of staggering numbers that speak to a serious slide lower in terms of macroeconomic activity, coupled with the threat of inflation," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.
U.S. equity index futures pared losses on the data, while U.S. government bond prices were little changed and the U.S. dollar extended gains versus the yen.
The data, coming on the heels of a report on Tuesday showing prices received by U.S. producers fell 1.2 percent last month, could revive fears of deflation. Producer prices slumped 3.5 percent in March compared to the same period a year earlier, the largest decline since 1950.
Deflation is a broad-based decline in prices that can undercut an economy by leading consumers to hold off purchases in the hopes of even lower prices.
Energy prices dropped 3.0 percent in March after rising 3.3 percent the previous month. The food index eased 0.1 percent for a second straight month in March, the department said.
Core prices, which exclude food and energy items, rose 0.2 percent after rising by the same margin in February. That compared to analysts' prediction for a 0.1 percent increase. Core prices have risen by 0.2 percent for three months in a row. March core prices were lifted by increased costs for tobacco, which accounted for over 60 percent of the rise, and vehicles.
Core prices rose 1.8 percent year over year.
Meanwhile, manufacturing activity in New York State contracted less severely in April after diving to a record low the previous month, a separate report from the New York Federal Reserve showed.
This backs views that the pace of deterioration in the economy was slowing and the recession, now in its 16th month should end in the second half of the year.
Upshots in new orders and shipments were major boosts to the state's factory sector in April, while weakness in inventory and hiring remained severe drags, according to the latest regional Fed report.
The New York Fed's "Empire State" general business conditions index was minus 14.65 in April, compared with record low of minus 38.23 in March.
The April reading was the least negative since September during the peak of the global credit crunch.
The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.
The manufacturers surveyed turned less worried about future business conditions. The survey's six-month outlook index rose to 33.1 in April, the highest since September. In fact, 51 percent of the respondents expected conditions to improve, up from 38 percent in March.
