U.S. Inflation Rises 2.2% for the Year, Consumer Prices Fall 0.1% in April

U.S. consumer prices surprisingly fell in April as core inflation over the past 12 months climbed at the slowest rate in 44 years, the Labor Department reported today.

"We do not have any inflation pressure," Ward McCarthy, chief financial economist at Jefferies & Co. in New York, said today in an interview on Bloomberg Radio. "On the international level, there is tremendous price competition."

The Consumer Price Index, the government’s most closely watched indicator for inflation, edged 0.1% lower in April. The index was helped by mostly subdued energy costs. It was the first decline in the CPI since March 2009, and two notches away from a 0.1% increase most economists were expecting, which was the same level reported in March.

Energy costs dropped 1.4% last month, with gasoline prices leading the declines at minus 2.4%. Food prices were up 0.2%.

Excluding volatile food and energy prices, the so called core inflation rate in April was unchanged for a second straight month.

"Inflation continues to be a non-issue," economist Anika R. Khan of Wells Fargo Investments said in a research note.

Energy prices have soared 18.5% over the last year. That led in driving inflation 2.2% higher over the past 12 months compared to a 2.3% increase during the 12 months ending in March. However, core inflation rate rose a modest 0.9%.

"The continuing stability of the index for all items less food and energy has resulted in an increase over the last 12 months of 0.9 percent, the smallest 12-month increase since January 1966," the Labor Department’s Consumer Price Index Summary report stated.

The 12-month core rate is actually below the Federal Reserve’s comfort range of 1%-2%, which raises deflationary concerns for some.

"The latest CPI data confirms that the Fed has a free hand to concentrate on growth and can extend the ‘extended period’ language for an extended period," Alan Ruskin, strategist at RBS Securities, was quoted on FT.com. "The bad news is that the softness we are seeing in core prices could awaken fears of deflation, notably if we see a renewed downturn."

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.

"The speed of disinflation is now alarmingly rapid, and it adds weight to our long-held view that the U.S. will come perilously close to deflation over the next year or so," Ian Shepherdson, chief U.S. economist for High Frequency Economics wrote and was cited on MarketWatch.

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.

April Consumer Price Details

Rising prices include:

  • Fuel oil prices jumped 2.3% in April after rising 0.7% in March. They are up 28.0% on the year.
  • The index for electricity rose 0.7% following a 2.1% increase in the prior month.
  • Used car and truck prices advanced 0.2% after a 0.5% increase. They are up 16.6% over the past
    year.
  • Food prices are 0.2% higher, matching the prior month’s increase.
  • Medical care expenses rose 0.2% in April. They were up 0.3% in March.
  • Airline fares increased sharply in April, rising 2.2%.

Declining prices include:

  • Gasoline prices ended down 2.4% after falling 0.8% in March. However, they are 38.3% higher than a year ago.
  • A 4.4% decline in natural gas more than offset the above stated increases in fuel oil and electricity.
  • Fruits and vegetables prices, which rose 3.4% in March, declined 0.2% in April.
  • Clothing prices fell 0.7%. They were down 0.4% in March and are 0.9% lower over the past year.

Shelter costs, which account for about one-third of the CPI, were unchanged in April. They declined 0.1% in March. New vehicle prices were also flat.

The CPI report comes on the heels of the government’s release of the Producer Price Index on Tuesday. The PPI is the measure of wholesale inflation, or prices businesses (farms and factories) pay for their goods. Producer prices in April also declined 0.1% after rising 0.7% in March.

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