Inflation drops 1.3% in year; most in six decades, consumer prices rise 0.1%

Consumer prices crawled weakly higher in May and for the first time in three months while inflation plunged 1.3% in the past year to mark the largest decline since April 1950, the government reported Wednesday.

The Labor Department said the Consumer Price Index, which measures inflation pressures at the consumer level, inched 0.1% higher in May following a flat reading in April. The increase was less than generally expected, but many analyst are expecting more of the same tame readings in coming months.

"Inflation may be coming, but it’s not here yet and likely won’t be for some time," Richard Moody, chief economist at Forward Capital, was quoted on the AP.

"Inflation is not an issue,"Michael Moran, chief economist at Daiwa Securities America Inc. in New York, was quoted on Bloomberg. "There are huge amounts of slack in the economy and demand is quite soft, so it’s difficult to see how inflation can pick up for the balance of the year."

May’s higher energy costs — most specifically gasoline prices at the pump — were offset by lower food prices.

The CPI is a key government gauge for inflation. The core CPI, which excludes volatile food and energy prices, is even more closely watched. It climbed 0.1 percent as well and follows 0.3% increase in April.

"While headline inflation will likely be temporarily boosted in the near-term by substantial upside in gasoline prices, we expect core inflation to continue to decelerate steadily going forward as slack in the economy reaches unprecedented levels," wrote economists for Morgan Stanley who were quoted on MarketWatch.

The core CPI is up 1.8% over the past year. That is within the Federal Reserve’s traditional comfort range of 1%-2%.

Consumer price details

Rising May prices include:

  • Energy costs jumped 0.2% after two straight months of declines
  • Gasoline prices surged 3.1 percent following a 2.8% decline the prior month
  • Medical care rose 0.3% after a 0.4% increase in April and a a 0.2% rise in March
  • Education and communication prices gained 0.3%, the same as the prior month
  • New vehicles prices rose 0.5% following a 0.4 % increase in April and a climb of 0.6% in March
  • Used car and truck prices increased 1.0%, marking the first increase in over a year

Declining May prices include:

  • Food and beverage prices fell 0.2% for the second straight month
  • Tobacco and smoking products declined 0.3% following the prior month’s 9.3% increase (due to taxes)
  • Natural gas prices fell 5.7%
  • Clothing prices dropped 0.2% for the third straight month
  • Housing prices, which accounts for about a third of the CPI index, declined 0.1% for the third straight month
  • Airfares declined 1.5% for a second straight month and have declined 18.5% from the August 2008 peak

In a separate report Tuesday, the Labor Department said producer price rose 0.2% in May. A companion-like report to the CPI, the PPI measures prices at the factory door and inflation pressures before they reach the consumer.

Leave a Reply