First Decline in Consumer Prices In 10 Months

Consumer prices fell for their first time in 10 months in May at 0.1%, while energy prices declined following record highs in the previous months.

In the three months before May, the Labor Department reported that the Consumer Price Index had gains of 0.4%, 0.6%, and 0.5% driven by high energy prices.

In May, wholesale prices in the U.S. dropped 0.6%, which is their biggest decrease in over two years. Retail sales fell 0.5%, their most in nearly one year.

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. The Chicago Tribune reports:

Energy prices helped drive the CPI lower. They fell 2 percent in May after rising 4.5 percent a month earlier. Gasoline prices dropped 4.4 percent last month. The so-called core index, which excludes volatile food and energy costs, rose a less-than-expected 0.1 percent.

Some economists said the decline in consumer prices won’t be enough to keep the Federal Reserve from continuing to raise interest rates because labor costs are rising and oil prices have turned upward again. The Fed has raised rates by a quarter of a percentage point eight times since last June, to 3 percent. Its policymaking committee next meets June 29-30.

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.

Chris is a staff writer for Murdok. Visit Murdok for the latest ebusiness news.