WASHINGTON, March 29 — A key US inflation measure dropped sharply in January due to plunging energy costs, the Commerce Department reported today.

The cost for energy goods and services fell 6.4 per cent at the start of the year, compared to January 2018, dragging the Federal Reserve’s preferred inflation index down to 1.4 per cent year-over-year, four tenths lower than the December rate.

That was the lowest annual inflation rate since September 2016.

Even excluding volatile energy and food components, the PCE price index—based on personal consumption expenditures—slowed to 1.8 per cent year-over-year, once again dropping below the Fed’s 2 per cent target.

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The price index fell 0.1 per cent compared to December, after a 1 per cent jump in the final month of 2018, the report said.

Continued tame price pressures and  increasing signs the US economy has peaked, at a time of slowing global growth, have prompted the Fed to pledge to hold off on further interest rate increases for the foreseeable future.

And some economists are predicting the central bank will have to cut rates later this year as growth slows, making the four increases last year look suspect.

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However, the Fed is working with limited data; the recent five-week government shutdown delayed data collection by government statistics agencies. 

The Commerce Department reported that personal income in February rose 0.2 per cent, after a slight decline in January But the agency did not have information on spending last month and therefore could not provide the inflation index for February.

Personal consumption spending rebounded slightly in January, rising 0.1 per cent or US$8.6 billion (RM35.09 billion), after December saw the biggest decline in nearly a decade. — AFP