CPI falls - slight deflation over last year

[Surlethe]

WSJ

WASHINGTON -- For the first time in over a half century, the prices U.S. consumers pay for goods and services are lower on average than they were one year ago.

Still, government price data for March suggest the risk of sustained, broad-based price declines known as deflation remains fairly remote, since the drops are still mostly centered in energy and energy-related products.

The consumer price index slid 0.1% in March from February, the Labor Department said Wednesday, in line with economist forecasts, according to a Dow Jones Newswires survey.

The core CPI, which excludes food and energy prices, was up 0.2% for a third-straight time last month, slightly greater than expected. However, an 11% rise in tobacco prices accounted for over 60% of the rise in the core index, suggesting that when that largely one-off change is excluded, prices remain very tame across the board.

Unrounded, the CPI fell 0.138% last month. The core CPI rose 0.171% unrounded.

Consumer prices fell 0.4% compared to one year ago, the first time the annual rate has dipped into the red since August 1955. It's also significantly under the 2% annual rate of inflation that most Fed officials think is consistent with their dual mandate of price stability and maximum employment.

"Our best forecast is that inflation will remain quite low for some time," Fed Chairman Ben Bernanke said in a speech Tuesday.

In a sign of just how rapidly price risks have changed, annual inflation was above 5% as recently as last August, before energy and commodity price drops kicked in and the global economic downturn deepened, bringing prices down for many imported goods.

"I don't think the concern about deflation in the nearer term is one that can be entirely discounted," White House economic adviser Lawrence Summers said last week.

Still, the less-volatile core CPI index was up 1.8% from one year ago and increased at a 2.2% annual rate over the last three months, which is more in line with the Fed's preference.

As long as price declines stay centered in things like energy, commodities and food, it's largely a plus for the economy by freeing up more disposable cash for households to spend. Indeed, consumer spending has shown some tentative evidence of stabilizing so far this year, although retail sales slid last month.

According to Wednesday's report, energy prices fell 3% in March from February, and were down 23% over the last 12 months. Gasoline prices fell 4% last month, while food prices slid 0.1%.

Transportation prices, meanwhile, decreased 1.1%. Airline fares tumbled 2.3%, though new vehicle prices increased 0.6%. Still, auto prices are down 0.8% from a year ago, reflecting the severe downturn in that sector.

Housing, which accounts for 40% of the CPI index, fell 0.1%. That index hasn't risen since July 2008. Rent increased 0.2%, as did owners' equivalent rent. However, household fuels and utilities prices slid 1.4% while lodging away from home plunged 2.4% as households cut back on discretionary spending.

Medical care prices increased 0.2%, while clothing prices fell 0.2%.

In a separate report, the Labor Department said the average weekly earnings of U.S. workers, adjusted for inflation, were unchanged in March. An increase in average hourly earnings was offset by a reduction in hours worked.

This is evidence that the money the Fed's been printing hasn't gone anywhere; if the banks were working, we'd be seeing the core CPI shoot through the roof.

[ArmorPierce]

I'd like to see where all this hyper-inflation is that these talking heads were trying to fear monger people into believing.

[KrauserKrauser]

It's hiding behind the curtains, waiting for the other shoe to drop.