US consumer prices fall slightly on cheaper gas

Ed Joyce/KPCC

The Labor Department said Thursday that a sharp fall in the cost of gasoline drove a measure of U.S. consumer prices down last month by the most since December 2008. Outside the drop in fuel costs, prices were largely unchanged. (Recent gas prices in Newport Beach, Calif.)

A sharp fall in the cost of gas drove a measure of U.S. consumer prices down last month by the most since December 2008. Outside the drop in fuel costs, prices were largely unchanged.
    
The consumer price index fell 0.4 percent in April from March, the Labor Department said Thursday. The main reason the index fell was gas prices plunged 8.1 percent.
    
For the 12 months that ended in April, overall prices rose 1.1 percent, the smallest annual gain in 2 ½ years.
    
Excluding volatile energy and food costs, core prices ticked up 0.1 percent last month. Core prices have risen only 1.7 percent in the past 12 months. That's just below the Federal Reserve's 2 percent inflation target.
    
For now, inflation remains under control. That means consumers can stretch their paychecks and buy more goods and services. But if it were to fall further, it could stoke fears of deflation, a destabilizing cycle when prices and wages fall steadily. That can slow economic growth.
    
The current trend of mild inflation also allows the Fed to continue its extraordinary efforts to stimulate the economy. And worries about lower inflation or deflation might push the Fed to step up its low interest rate policies to stimulate more borrowing and spending and push prices higher.
    
"Subdued demand means that core inflation is likely to edge lower, as retailers will be forced to pass previous falls in raw material costs onto customers," Paul Dales, an economist at Capital Economics, said in a note to clients. "The Fed may soon put more emphasis on fading inflation trends."
    
A little inflation can be good for the economy, because it encourages businesses and consumers to spend before prices rise further.
    
Aside from sharp swings in gas prices, consumer and wholesale inflation has been mild this year. The combination of modest economic growth and high unemployment has kept wages from rising quickly. That's made it harder for retailers and other firms to raise prices.
    
The average national price for a gallon has fallen since reaching a peak this year of $3.79 on Feb. 28. The average price was $3.60 a gallon on Thursday, according to AAA.
    
The Fed has said it will keep the short-term interest rate it controls at nearly zero at least until unemployment falls below 6.5 percent, as long as inflation remains mild.
    
It is also buying about $85 billion in Treasury securities and mortgage-backed bonds in an effort to keep longer-term interest rates low and spur more borrowing and spending. That's intended to encourage more borrowing and spending, which drives economic growth.
    
Many economists expect the Fed will begin to taper those purchases by the end of the year, particularly if hiring stays healthy. But too-low inflation could encourage them to continue.

 

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