Prices in the US fell for the first time in more than a year in April, as tepid energy prices and the lingering effects of the recession contained the cost of living.

The US consumer price index fell unexpectedly last month, declining by 0.1 per cent, according to labour department figures. Economists were expecting a slight increase for the month, while year-on-year prices have climbed by a modest 2.2 per cent.

Meanwhile, closely watched “core” prices, which exclude food and energy, were flat last month. During the last year, core prices have increased by just 0.9 per cent, the smallest annual rise since 1966.

The Federal Reserve has continued to argue that prices remain muted, justifying the continuation of its “near zero” interest rate policy, which has managed to stimulate growth without inflating the cost of living. Some analysts argue that ongoing turbulence in Europe could further weigh on prices, potentially stoking deflation concerns.

“The latest CPI data confirm that the Fed has a free hand to concentrate on growth and can extend the ‘extended period’ language for an extended period,” said Alan Ruskin, strategist at RBS Securities. “The bad news is that the softness we are seeing in core prices could awaken fears of deflation, notably if we see a renewed downturn.”

Last month, declining energy prices held back the CPI, with its energy index falling by 1.4 per cent. However, prices for apparel and furnishings and housing also fell in April.

Falling prices were blunted last month by increases in the cost of food, air fares and medical costs.

Wednesday’s figures mimicked Tuesday’s unexpected decline in wholesale prices, which were also held back by the declining cost of energy.

Be alerted on US downturn

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