The US consumer price index stood unchanged in May, the US Labor Department reported. In April, the index increased by 0.7 per cent, which scared markets into believing that an increase in interest rates was just around the corner. The markets took heart from May's shift, and the Dow Jones Industrial Index soared to close up 189.96 points at 10,784.95 yesterday. The technology-intensive Nasdaq index had its strongest one-day gain ever in points, ending up 103.17, or 4.27 per cent, at 2,517.84.
The inflation figure was distorted by a sudden fall in oil prices in May, after an equally sudden rise in April. Stripped of energy and transport components, the outlook for inflation remains as it was, with moderate price rises that show no signs of precipitating a wage-price spiral.
The index for all items except the volatile food and energy component rose by 0.1 per cent in May. Food prices rose by 0.4 per cent, and medical care and recreation costs rose a moderate 0.2 per cent.
"The deceleration in May reflects downturns in the indices for apparel, for tobacco and smoking products, and for airline fares, coupled with a smaller increase in shelter costs," the Labor Department said.
The US Federal Reserve indicated at its last meeting that it had shifted its policy towards tightening interest rates. Its next meeting is on 29 June, and most market participants still to expect a rise in rates. Today will give an indication of the Fed's stance when Alan Greenspan, the chairman, addresses Congress on the economy.
Mr Greenspan has indicated that labour market trends are of more concern at the moment than prices, as unemployment continues at very low levels.
US long-term interest rates have been rising steadily since December, and the yield on the benchmark 30-year US Treasury bond still seems to indicate a growing anticipation of an interest-rate rise. However, the 30-year Treasury bond fell to 6.03 per cent from 6.08 per cent.
Outlook, page 19