US Consumer Prices Dip 0.1% in June 2010, Annual Inflation at 1.1%

U.S. consumers paid less for goods and services in June, thanks in large part to flat food prices and lower gasoline bills, the government reported Friday.

The Consumer Price Index dropped 0.1% in June, marking the third straight monthly decline since March when prices edged 0.1% higher, according to Labor Department data. The index is the most closely watched indicator for inflation. The decline follows a 0.2% slide in May and a 0.1% dip in April. The last time consumer prices fell for three consecutive months was between October and December 2008.

Sliding energy prices were the biggest contributor, down 2.9% in June, the same decline as in May. Gasoline prices plunged 4.5% to account for "most of the decrease," the Labor Department said.

"The CPI is quite low, it’ll reinforce the thinking within the Fed that they can afford to keep interest rates low," Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto, was noted on Reuters.

Stripping out volatile energy and food prices, the core inflation rate rose 0.2% — the biggest gain since October 2009, after rising 0.1% in May. Core consumer prices were unchanged in April and March.

"Inflation is essentially a non issue right now, and that’s good news for consumers who feel stretched and uncertain. There are some bargains to be had," economist Joel Naroff, president of Naroff Economic Advisors, was quoted by the AP. "Once consumers get more confident and are willing to spend again, they will see that stores are filled with goods at prices they like."

Aside from flat food and falling energy costs, most other areas of the index showed slightly higher prices, calming deflation worries.

"Inflation will be tame because there is so much slack in the economy, but this number should lessen deflation fears somewhat," James O’Sullivan, chief economist at MF Global Ltd. in New York, was quoted on Businessweek.

Deflation is a broad-based decline in consumer 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 rose 1.1%, following May’s 2.0%, 12-month inflation reading. Core consumer prices increased 0.9% on an annual basis, which was the same level as in May and April — the smallest 12-month increase since January 1966.

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

June Consumer Price Details

Rising prices include:

  • Used car and truck prices climbed 0.9% in June after rising 0.6% in May. They are up 16.1% over the past
    year.
  • Clothing prices jumped 0.8% last month following a more modest increase of 0.2% in May. Prices are still down 0.4% from a year ago, however.
  • Shelter costs, which account for about one-third of the CPI, matched May’s 0.1% increase. They were unchanged in April and have declined 0.7% over the past year.
  • Natural gas costs climbed 0.6% after declining 1.0% in May.

Declining prices include:

  • The energy index fell 2.9% for the second month in a row, after declining 1.4% in April. They have climbed 3.0% over the past 12 months, however.
  • Airline fares declined 0.6% in June after rising 1.9% in May and 2.2% in April.
  • Gasoline prices dropped 4.5% following a plunge of 5.2% in the prior month. They are 3.0% higher than a year ago.
  • Fuel oil prices were down 3.2% after a 1.4% decline in May. They are up 16.6% on the year, however.
  • The index for electricity decreased 2.2%. They were down 0.4% during the prior month.
  • Fruits and vegetables prices declined 1.3%. They fell 1.1% in May.

Food prices were flat for a second straight month, after rising 0.2% in April. Medical care commodities prices were also flat following a 0.1% increase in May.

The CPI report comes on the heels of the government’s release of the Producer Price Index on Thursday. The PPI is the measure of wholesale inflation, or prices businesses (farms and factories) pay for their goods. Producer prices slid 0.5% in June.

The Consumer Price Index for July 2010 is scheduled to be released on Friday, August 13, 2010, at 8:30 a.m. (EDT).

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