Deflation reminder

19 May 2010 By Agnes Crane

The drop in U.S. CPI in April gives the Federal Reserve cover for keeping interest rates low. And even if it s a blip, the lowest annual rise in core CPI in more than 40 years could put deflation fears recently forgotten back in investors minds.

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The U.S. consumer price index fell 0.1 percent in April for a yearoveryear pace of 2.2 percent. The core CPI, which strips out volatile food and energy prices, rose just 0.9 percent versus a year ago, the slowest annual rate since January 1966.

In the first quarter, U.S. productivity rose by 6.3 percent as the unemployment rate hovered around 10 percent.

In 2002, Ben Bernanke, now the Federal Reserve chairman, earned the nickname Helicopter Ben when he referred in a public speech to a helicopter drop of money to fight deflation a growing worry at the time.

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