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Consumer prices drop on cheaper gas, electricity and apparel

April 16, 2013|By Don Lee
  • Consumer prices fell last month, thanks to lower oil prices. Employee Rudy Rocha delivers gas to a Costco gas station in Tustin.
Consumer prices fell last month, thanks to lower oil prices. Employee Rudy… (Jae C. Hong / Associated…)

WASHINGTON — U.S. consumer prices slid in March after spiking in the prior month as gasoline prices fell back — the latest indication that inflation remains subdued despite the Federal Reserve's continued action to pump billions of dollars into the financial system. 

The consumer price index, seasonally adjusted, sank 0.2% last month from February, the Bureau of Labor Statistics said Tuesday. The drop was bigger than some analysts expected and followed an unusually steep monthly increase of 0.7% in February.

The energy component, which accounts for about 10% of the items that make up the overall consumer price index, fell 2.6% last month, mostly because of a sharp drop in pump prices but also due to a decline in the cost of electricity. Consumers also paid less for apparel last month, reflecting weakening producer prices amid an uncertain global outlook.

U.S. food prices overall were unchanged last month. Excluding volatile energy and food items, so-called core inflation rose a modest 0.1% in March from February. That brought the annual core inflation rate in March back down to 1.9%. And for all items, the rate of inflation dropped to 1.5% in March, from 2% in February. 

Either way, the latest report showed that inflation remains tame and continues to run at or below the 2% target set by the Fed. Analysts said the consumer price index could slide further in the next couple of months as gas prices, which peaked earlier this year than normal, are likely to keep falling.

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"There is substantial slack in the labor market and in the markets for goods and services, and underlying measures of inflation are subdued," said William Dudley, president of the New York Fed Bank, in a speech Tuesday. "Moreover, peoples’ expectations of inflation remain well anchored at levels consistent with our 2% longer-run objective. Thus, I conclude that the risk that inflation could significantly exceed our 2% objective is quite low over the next few years, even if the economy were to strengthen considerably."

Not all would agree with that assessment, but with few signs of a threat of inflation and economic growth remaining moderate and uneven, the Fed is expected to focus on maximizing employment by maintaining its large-scale bond buying. The program, known as quantitative easing, or QE, is aimed at lowering long-term interest rates to stimulate investment and spending.

"With inflation remaining unusually low, the Fed is under little pressure to slow or halt its open-ended QE," said Paul Ashworth, an economist at Capital Economics, in commenting on Tuesday's inflation report.


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