U.S. Consumer Prices Fall on Lower Energy Costs

U.S. Consumer Prices Fall on Lower Energy Costs
By CHRISTINE HAUSER
Copyright by The New York Times
Published: June 17, 2010
http://www.nytimes.com/2010/06/18/business/economy/18econ.html?hp


For the second time this year, consumer prices fell in May, largely because of the lower cost of gasoline, the government reported on Thursday.

The Bureau of Labor Statistics showed that seasonally adjusted consumer prices fell 0.2 percent last month compared to a decline of 0.1 percent in April. The drop was almost entirely the result of lower energy prices — gasoline fell 5.2 percent in May, the largest decline this year.

The core consumer price index, however, which excludes volatile food and energy prices, firmed slightly in May by 0.1 percent. That core figure was flat in April and March, but the May increase was the second for the year. Prices for housing, used cars, apparel and medical care all rose last month, the statistics showed.

The figures suggest that for now, inflation is tame, well below the Fed Reserve’s unofficial target of about 2 percent. The Federal Reserve’s policy committee is set to meet for two days next week.

“The Fed has got the flexibility to focus very firmly on growth,” said David Semmens, a United States economist for Standard Chartered Bank. “Inflation is definitely not a concern in the short or medium term.”

Investors and economists will be closely watching the Fed meeting for any change in the language of the statement on rates. The Fed chairman, Ben S. Bernanke, told the House Budget Committee last week that the economy was still in a recovery mode and needed support.

Given the high unemployment and low inflation, the Fed is likely to wait until 2012 before it starts to raise interest rates, according to a research paper released Monday by the Federal Reserve Bank of San Francisco. The bank does not represent the official position of the central bank.

Most economists estimate that the Fed will increase the federal funds rate sooner. Mr. Semmens suggested such a move could come in the third quarter of next year or later.

With inflation apparently under control, maximizing employment is another priority. Weekly jobs data released on Thursday were weaker than expected, with claims rising by 12,000 to 472,000, suggesting continued pressures on consumer confidence because of the soft job market.

Mr. Semmens said in a research note that the jobs data show that the country was “still failing to create jobs at a pace that will tackle the high level of unemployment.”

Ultimately, he said, consumers will be cautious about their spending because of the weak job market.

Consumer price statistics also showed that prices for housing rose 0.1 percent, the first rise since August, 2009. The food index was unchanged after increasing 0.2 percent in the last two months.

“The U.S. economy is slowing down, particularly relating to the consumer,” said Allen Sinai, president and chief global economist for Decision Economics. “The jobs market is not improving, and we are observing a deflationary tendency in the price indices.”

A report on Thursday on regional manufacturing activity showed a slowdown in activity. The Federal Reserve Bank of Philadelphia said that regional manufacturers in a survey reported there was no expansion of overall employment and work hours this month, compared with May.

The survey said activity continued to expand in June, but at a slower rate than it did last month, with the index falling to 8.0 in June from 21.4 in May.

But manufacturers expected there to be growth over the next six months.