U.S. consumer prices fall 0.4 pct. on cheaper gas
5/16/2013WASHINGTON — 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 today. 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.
Low inflation allows consumers to stretch their paychecks and buy more goods and services. It also means the Federal Reserve can continue its extraordinary efforts to stimulate the economy. If there were signs that inflation was picking up, the Fed might be forced to raise interest rates.
Excluding volatile energy and food costs, core prices ticked up 0.1 percent last month. Rents and new and used cars rose. Airline fares and clothes fell.
Core prices have risen only 1.7 percent in the past 12 months. That’s just below the Fed’s 2 percent target. 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 today, 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.