U.S. consumer prices record first 12-month drop since 1955

US consumer prices fell in March and this indicates the first 12 month drop since August 1955. A report made by Reuters, shows that the consumer price index had fallen 0.1% after increasing 0.4% in February.

Energy and Food prices dropped, highlighting the effects of a recession which has reduced consumer demands. In addition to this, the Federal Reserve has outlined that factories, mines, and refineries have shown a notable decrease in output dropping by 1.5%. Some economists say that a drop in prices may appear to be good news for consumers in the short term, but in the long term, it can be devastating to the economy if it reaches to the point of a deflation.The reason is that if prices continue to drop below the amount needed to produce goods, then we will see more lay offs and pay cuts as businesses try to mitigate further losses caused by reduction in production levels. If you look at this from the consumer angle, deflation can also be damaging to the economy when people put a hold on buying products, as they hope to get even lower prices at a later time. Despite the drop in US consumer Price index, experts say that there is no threat of deflation- at least for the moment. Trends will be closely analyzed in the months ahead to see whether the looming speculations are substantial.