Pushed down by declining energy prices, U.S. consumer prices dropped in March, and the annual inflation rate dipped for the first time since 1955, the Labor Department reported Wednesday.
The Consumer Price Index (CPI), the most closely watched gauge for inflation, fell 0.1% after increasing 0.4% in February. The decline was unexpected with many analysts forecasting an increase around 0.1%. On an annual basis, inflation was down 0.4%, marking the first decline since August 1955.
While deflation fears were eased with rising prices revealed in the CPI data for February, the latest numbers rekindle notice.
"We’re in a very deep global recession that’s going to hold prices down," Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, was quoted on Bloomberg. "Deflation is still something that’s a risk, though I don’t think we’ll get into a deflationary spiral."
However, during the last several weeks an outlook for potential stinging inflation has been more of the economic buzz.
"The real risk to this economy is inflation," said Ken Mayland, president of ClearView Economics. "When the Fed doubles — and is en route to — tripling its balance sheet, I don’t fear deflation."
MarketWatch quoted an analyst at RDQ Economics voicing a similar opinion.
"While the Fed will remain concerned about deflation risks because of the high and rising level of unemployment, we believe that the massive expansion of the Fed’s balance sheet that is underway provides ample insurance against deflation and, in the longer run, threatens a pickup in inflation."
Deflation is a persistent decrease in general prices. When prices mark sustained deflationary levels that strike below the cost to produce goods and services, further economic turmoil can ensue with production cuts, payroll reductions and deepening unemployment.
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 increased by 0.2% for a third month in a row. Many economists were expecting a 0.1% rise.
The core CPI is up 1.8% over the past year, matching February. That is right within the Federal Reserve’s favored 1%-2% range, and further helps to alleviate deflationary concerns.
Consumer price details
Rising March prices include:
- Tobacco and smoking products rose 11%, accounting for over sixty percent of the March rise
- New vehicles prices climbed 0.6% following a 0.8% increase in February
- Education and communication prices gained 0.2% for the second straight month
- Medical care was up 0.2%, and has increased 2.8 percent over the past year
Declining March prices include:
- Energy costs fell 3.0% after a 3.3% jump in February
- Housing prices, which accounts for about 40% of the CPI index, declined 0.1% following three straight months of flat readings
- Clothing prices dropped 0.2% after the 1.3% surge in February, which was the biggest increase in nearly 20 years
- Food prices fell 0.1% for the second straight month
- The food at home index declined 0.4% for the second consecutive month
- Airfares declined 2.3%, falling for the seventh straight month
- Transportation costs dropped 1.1%
- Used car and truck prices fell 1.7%, also for the second month in a row
In a separate report Tuesday, the Labor Department said the Producer Price Index fell 1.2% in March (also due largely to a drop in energy prices). A companion-like report to the CPI, the PPI measures prices at the factory door and inflation pressures before they reach the consumer.
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