BNP Paribas notes that US inflation is decelerating, and the massive drop in oil prices makes a negative-reading in the year-on-year development of the CPO almost unavoidable. The Consumer Price Index has been markedly decelerating as of recently, a development that admittedly owes to falling oil prices, but not entirely. Excluding energy, food and the cost of primary residence – which CPI weights are 8.4%, 14.1% and 29.5%, respectively – consumer inflation is running at the slowest pace since end-2010. Except for energy, the slowdown in inflation is due to prices of non-energy non-food commodities, which are in negative territory – on year-on-year terms – since May 2013, a development that has more chance to exacerbate than to ease, with the strong appreciation of the US dollar since last summer. Non-petroleum import prices, after a short period of acceleration at the beginning of 2014, began decelerating again at the beginning of last summer, ending up down by 1.6% in December (3-month annualised rate). The massive drop in oil prices makes a negative reading in the year-on-year development of the CPI almost unavoidable fact that it is accompanied by a deceleration in core prices, increases the likelihood of the PCE price index to record the same development. As oil prices extended losses since December, when the energy component of the PCE price index was down 11.9% y/y, that decrease could end up being as marked as in 2009 (when it was down by 28.8% y/y in July). Were oil prices stabilise at current levels, the trough would be lasting until the end of the summer, cutting the overall year-on-year PCE inflation by roughly 1.1 pp. In short, further deceleration in core prices would drive the overall PCE price index dangerously close to zero.