Consumer Prices Drop 0.2% in May, Annual Inflation Up 2.0%

The cost of living in the U.S. declined in May for the second month in a row as energy prices retreated, the government reported Thursday.

The Consumer Price Index, the most closely watched indicator for inflation, fell 0.2% in May after edging 0.1 lower in April, the Labor Department said. Flat food costs and lower energy bills led by plunging gasoline prices aided in trimming U.S. consumer prices.

"The weak recovery has its upside, declining energy costs and that is helping take pressure off the cash-strapped consumer," Joel Naroff, president of Naroff Economic Advisors, was quoted by the AP.

Core consumer prices, which exclude volatile food and energy prices, rose 0.1% in May, marking only the second monthly increase this year. The core inflation rate was unchanged in April and March, rose 0.1% in February, and declined 0.1% in January.

"The core inflation rate remains uncomfortably low," Baird said. "The economy may be expanding, but at a pace that isn’t inspiring." Jim Baird, partner and chief investment strategist for Plante Moran Financial Advisors, said in a research note cited by CNNMoney.com. "Muted inflation, and the risk of deflation, seems likely to provide the Fed continued incentive to maintain its accommodative stance."

Deflation is a persistent decrease in general prices, or the opposite of inflation. Falling prices may seem like good news for consumers, but only to a certain point. If prices mark sustained deflationary levels that strike below the cost to produce goods and services, economic turmoil can ensue with production cuts, payroll reductions and deepened unemployment.

Inflation over the past 12 months is up 2.0%, following a 2.2% reading in the 12 months ending in April. Core consumer prices increased 0.9% on an annual basis, which was the same level as April and the smallest 12-month increase since January 1966.

The annual core rate remains a notch below the Federal Reserve’s preferred range of 1%-2%.

May Consumer Price Details

Rising prices include:

  • Used car and truck prices were up 0.6% in May after rising 0.2% in April. They are up 16.2% over the past
    year.
  • Clothing prices rose 0.2% in May. They were down 0.7% in April.
  • Airline fares rose 1.9% in May after increasing 2.2% in April.
  • Medical care commodities climbed 0.1% in May. They were up 0.2% in April.
  • Shelter costs, which account for about one-third of the CPI, moved up 0.1 in May. They were unchanged in April and have declined 0.7% over the past year.

Declining prices include:

  • The energy index fell 2.9% after declining 1.4% in April. However, they have climbed 14.7% over the past 12 months.
  • Gasoline prices declined 5.2% in May. They declined 2.4% in April. They are 27.0% higher than a year ago.
  • Fuel oil prices fell 1.4% in May after jumping 2.3% in April. They are up 27.1% on the year.
  • Natural gas costs were 1.0% lower after declining 4.4%.
  • The index for electricity decreased 0.4% after rising 0.7% during the prior month.
  • Fruits and vegetables prices declined 1.1%. They were down 0.2% in April.

Food prices were unchanged after rising 0.2% in April.

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