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US prices data best for 4 1/2 years

Peter Torday,Economics Correspondent
Friday 18 February 1994 00:02 GMT
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CONSUMER prices in the US stabilised in January, the most encouraging performance for 4 1/2 years, beating Wall Street expectations of a fresh rise in prices.

But an initial rally yesterday in US Treasury bonds later gave way to a wave of selling on fears of higher short-term rates in the US later this year.

Despite the promising inflation news the markets fear that the Federal Reserve will again lift rates to ensure that the strong economic expansion does not produce fresh inflation pressures.

Stable prices last month partly reflected new methods for calculating inflation, which have eliminated normally volatile price movements early in the year. Excluding erratic food and energy prices, the core consumer price index edged up by just 0.1 per cent.

Economists were cheered, however, by the absence of fresh inflation despite the strength of the economy, which suggests that another Fed tightening may occur much later than some assumed.

On a more worrying note, official figures revealed that the US trade deficit swelled by 37 per cent to dollars 115.8bn last year, the highest since 1988. The politically sensitive deficit with Japan accounted for 51 per cent of the total.

The 1993 total was almost double the shortfall in 1991 and well above the 1992 deficit, reflecting the expanding economy.

The annual figures, however, masked the fact that in December the deficit dipped by more than dollars 2bn to dollars 7.4bn, far below Wall Street forecasts. Exports during the month expanded by 4.9 per cent to a record dollars 42.2bn while imports shrank slightly to dollars 49.6bn.

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