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Good news at last! Yesterday Americans learnt they had received a real pay rise in March. On a non-seasonally adjusted basis the consumer price index fell 0.4 per cent year-on-year, the first decline in half a century. Lower fuel prices helped – core CPI, which strips out energy and food prices, was up 1.8 per cent. But prices look to be heading down. Indeed, even core numbers would barely have risen month-on-month if not for an 11 per cent tax-related rise in cigarette prices.

Of course, data suggesting deflation is round the corner is nothing to celebrate. Compared with February, prices are now falling for food, housing, apparel and transportation on a seasonally adjusted basis. In addition, there is little pricing power for service industries such as healthcare and education. If this trend continues the US risks falling into a similar deflationary mire experienced by Japan for much of this decade.

It is too early to say for sure. This latest data, however, should give pause to those piling into real assets or inflation protected bonds. Sure massive stimulus packages and a ballooning Fed balance sheet would normally raise the inflation flag. But these are not normal times. For a start, consumer prices remain closely tied to the slack in the economy. The Congressional Budget Office reckons that this so-called “output gap” will be about 7 per cent this year and next. Even using optimist growth assumptions, the CBO does not forecast this gap to close before 2015.

Nor, as some fear, does the fact that the monetary base has almost doubled to $1,700bn since September necessarily led to inflation. Goldman Sachs points out that the Fed can rein in many of its programmes very quickly if necessary, and raise interest rates or even issue its own debt to soak up liquidity. For now, at least, deflation remains enemy number one.

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