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Consumer Prices Dip In April

Wed, 05/19/2010 - 6:25am
Manufacturing.net

WASHINGTON (AP) -- Consumer prices fell in April for the first time in 13 months as energy prices tumbled and retail businesses responded to high unemployment and low wage increases.

The 0.1 percent decrease in overall prices was pulled down by gas prices that are expected to drop further over the summer.

Core inflation, which excludes volatile food and energy prices, was flat in April, according to the Labor Department report issued Wednesday. Core inflation is up just 0.9 percent over the past 12 months, the smallest increase since 1966.

The recession in 2007 and 2008 has kept inflation tame, giving the Federal Reserve leeway to keep interest rates at historic lows to help jump-start economic growth. Some economists worry about the possibility of deflation, a destabilizing period of falling prices.

"With the unemployment rate so close to 10 percent, it is entirely understandable that the Fed wants to stick with its commitment to leave rates at near-zero," said Paul Ashworth, senior U.S. economist at Capital Economics.

Ashworth said the Fed will not start raising interest rates until late next year and it\'s possible the first Fed rate hikes will not occur until 2012.

Economists had expected overall prices and core prices to edge up 0.1 percent in April.

The April drop in overall prices was the first decline since a similar dip in March 2009.

Energy prices fell 1.4 percent, the biggest one-month drop since March 2009. Gasoline prices dropped 2.4 percent. Analysts said they were looking for further declines in coming months as crude oil prices are down nearly 20 percent since April.

Food costs rose 0.2 percent, the same modest increase posted in March. Economists had expected a bigger increase because of a winter freeze on Florida vegetable and citrus crops.

Clothing costs dropped by 0.7 percent in April. The cost of new vehicles was unchanged last month. Airline tickets rose by 2.2 percent, one of the few areas to show price pressures last month.

Inflation at such low levels raises concerns of deflation. But most economists believe that threat remains remote. The overall economy has begun growing again and hiring is starting to pick up. The United States has not had to battle deflation since the 1930s.

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