Consumer prices took their first fall in 10 months last month at 0.1% as energy prices fell after reaching record highs in the months before.
As reported by the Labor Department, the decrease of the Consumer Price Index came after three months of big gains of 0.4%, 0.6%, and 0.5%, which were driven by high energy prices.
The Commerce Department attributes this to Americans buying fewer cars and clothes. Fears of inflation may be put to rest by this new government data.
Economists had expected only a decline of 0.2% for both areas. The decline of producer prices is mostly due to the fall of energy prices and lower costs of food. AP reports:
The department said energy prices plummeted 3.5%, the biggest drop since April 2003. Gasoline prices dropped 9.9%, heating oil costs fell 7.8% and the cost of liquefied petroleum gas was off 9.8%.
Producer prices have followed an uneven upward path as energy costs trace the sharp up-and-down movements in the cost of crude oil. Over the past 12 months, energy prices have risen 10.2%, a driving force behind the 3.5% rise in producer prices.
Back at the beginning of April, oil prices were at a record high, but in May they fell as low as $46.80 a barrel. They have gone back up since then, of course, so May’s lower producer prices may not last long.
In May, food prices saw their biggest decline since January with a 0.3% decrease. This was a big factor in the fall of producer prices too. Producers prices dropped their most since April of 2003.
These government reports have led traders to believe that the Federal Reserve will not make any changes to the fixed gradual pace at which it raises interest rates.
“These numbers look entirely consistent with the Federal Reserve going 25 basis points per meeting and staying the course,” said Brown Brothers Harriman senior currency strategist Nick Bennenbroek.
Chris is a staff writer for Murdok. Visit Murdok for the latest ebusiness news.
