A measure of U.S. consumer prices fell in May by the most since December 2008, pulled down by a plunge in gas prices. Excluding volatile food and energy costs, prices rose only modestly.
The Labor Department said Thursday that the consumer price index dropped 0.3 percent (on a seasonal basis). Gas prices sank 6.8 percent, also the most since December 2008. Food costs were unchanged.
Mild price increases give consumers some relief at a time when unemployment is high and wage gains are meager. Lower inflation also gives the Federal Reserve more leeway to keep interest rates low.
So-called core prices, which exclude food and energy, rose 0.2 percent for the third straight month.
Over the past 12 months ending in May, consumer prices rose 1.7 percent, much less than the pace for the 12 months that ended in April. Core prices have risen 2.3 percent in the past year, the same as for the 12 months ending in March and April. That’s close to the Fed’s 2 percent target for inflation.
Some economists said the slowdown in overall price increases makes it more likely the Fed will announce some new step to boost the still-weak economy when it meets next week. If inflation were threatening to accelerate, Fed policymakers might feel compelled to raise interest rates or take other steps to fight rising prices. But with inflation tame, the Fed can focus on stimulating growth.
Most analysts think an extension of a current Fed program to swap short-term Treasury securities for bonds with longer maturities, known as Operation Twist, is the most likely step. The goal of that program has been to further lower long-term interest rates to encourage borrowing and spending.
Steady increases in rents for homes and apartments are pushing up core prices. Rents are rising as more people forgo homeownership and rent instead.
Core prices were also driven up by a sharp increase in the cost of used cars and trucks. The costs for medical care, clothing and air fares also rose.
Gas prices have tumbled 41 cents after peaking April 6. Prices at the pump averaged $3.53 on Thursday, according to AAA. That’s down 20 cents from a month earlier.
Food prices were flat because a small rise in restaurant prices offset a decline in grocery costs.
Utah inflation advances
Zions Bank’s consumer price index rose 0.5 percent (on a non-seasonal basis) in May as transportation costs along the Wasatch Front jumped 1.2 percent. The increase, however, was linked to rising car insurance rates. Gasoline prices remained relatively unchanged from April, rising only 0.3 percent. Food prices also helped drive local inflation higher. They rose 1 percent, the largest increase since January. Homeowners benefited from rising home prices, which were up 0.2 percent after rising 1 percent in April. Over the last 12 months, the Zions index has increased 2.6 percent.