US consumer prices dropped in July at the fastest rate since 1986, driven down by the tumbling price of gasoline, according to figures from the Labor Department.

The Consumer Price Index fell 0.3% last month – far more than the 0.1% forecast by economists and the sharpest drop since April 1986. Omitting food and energy, core inflation stood at just 0.2%, despite a hefty rise in tobacco prices.

Such low inflation comes in spite of six cuts in interest rates since the start of the year, providing the Federal Reserve with room to reduce short-term rates further at its meeting on Tuesday.

In the twelve months to July, prices rose 2.7%, compared with 3.6% in the previous year.

News source: New York Times