The U.S. Consumer Price Index reported the absence of inflation in September. This should put interest moves by the U.S. Federal Resrve on hold, says Canadian economists.

“Today’s report on consumer prices in the United States confirms that the U.S. Federal Reserve has no need to worry about either inflation or deflation in the coming months,” says TD Bank.

RBC Financial Group economists bolster TD’s view. “Today’s numbers confirm that headline inflation in the U.S. is holding steady while core inflation remains range-bound. This should ease the mind’s of those concerned about price deflation similar to that experienced by Japan in the 1990’s. Nevertheless, with a surplus of economic capacity still readily available due to a sluggish recovery thus far, inflation concerns will remain off the Fed’s radar screen for the near future.”

CIBC World Markets warns that oil prices remain a wild card. But CIBC economists agree that other indictors of future inflation continue to paint a fairly favorable picture. “We expect CPI inflation to remain fairly contained given these factors, averaging 2.1% in 2003 versus a 1.6% increase this year. Inflation is hardly the Fed1s top priority at this juncture. Having said that, today’s fairly benign report poses no obstacle to a further cut in interest rates if such action is needed to keep the recovery on course.”

“It is important to stress that so long as deflation does not take hold, the low inflation environment is generally positive for the economic outlook,” concludes TD. “Although falling prices for some goods and services will hamper the recovery in corporate profits, the subdued pace of inflation will allow the Fed to keep interest rates at historically low levels and will bolster real personal disposable income growth and consumer spending.”

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