Cheaper gas keeps U.S. consumer prices flat
Economy • Weak growth keeping inflation at bay.
Published: July 17, 2012 08:50PM
Updated: July 17, 2012 06:57PM
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(AP Photo/Elise Amendola, File) Weak growth is limiting the ability of companies and retailers to raise prices. The tame inflation environment was underscored by the fact that consumer prices fell 0.2 percent nationally in the April-June period.

Washington • Consumer prices were unchanged in June, held down by cheaper gas. Outside the volatile food and energy categories, inflation was mild.

Weak economic growth is limiting the ability of companies to raise prices. The tame inflation was underscored by a 0.2 percent drop in consumer prices for the April-June period as a whole. That was the first quarterly drop in consumer prices in two years.

In May, the consumer price index fell 0.3 percent. In April, it was unchanged.

In its report Tuesday, the Labor Department said gas prices fell a seasonally adjusted 2 percent in June, the third straight decline. Food prices edged up 0.2 percent.

Excluding the volatile food and energy categories, “core” prices rose 0.2 percent last month. It was the fourth straight increase of that size. But some analysts think core prices will begin to slow.

“With the economic recovery stalling and the unemployment rate still elevated, we would expect core inflation to ease soon,” Paul Ashworth, an economist at Capital Economics, said in a note to clients.

Mild price increases leave consumers with more money to spend, which could spur more growth. Lower inflation also gives the Federal Reserve room to launch new programs intended to boost the economy.

The inflation report comes as Fed Chairman Ben Bernanke kicks off two days of testimony on Capitol Hill. He will appear before the Senate Banking Committee Tuesday and a House panel Wednesday. Bernanke’s remarks will be watched for any hints that the Fed is preparing to take further action to try to accelerate growth.

Over the past 12 months, consumer prices are up 1.7 percent. That matches the increase for the 12 months that ended in May — the smallest increase in more than a year. It’s also below the Fed’s inflation target of 2 percent.

Core prices have risen 2.2 percent over the past year.

In June, a jump in fruit and vegetable costs and higher prices for meats, poultry, fish and eggs pushed up food prices. But prices of milk and other dairy products and cereals and bread fell.

The cost of health care services rose by the most in nearly two years last month, pushing up core prices. Clothing prices rose for the fourth month in a row. Cable TV and other recreation services prices increased, too.

At its June 19-20 policy meeting, the Fed agreed to extend a program that alters its bond portfolio to try to lower long-term interest rates. The aim is to inspire more borrowing and spending. And minutes of that meeting show a growing number of members are open to adopting further stimulus measures, such as launching another round of bond buying. But policymakers are at odds over whether the economy needs more help now.

Hiring has slowed sharply after a fast start to the year. And a report Monday said Americans spent less at retail businesses for a third straight month in June.

But inflation, at least, isn’t a problem. If the Fed were worried that prices are rising too fast, it might have to raise interest rates.

In the 12 months that ended in May, consumer prices rose 1.7 percent, much lower than the 12-month increase of 2.3 percent in April. That’s below the Fed’s 2 percent target for inflation. Core prices have risen 2.3 percent in the past year.

Gas prices have tumbled more than 50 cents a gallon since peaking in early April, although they may be leveling off. On Monday, the average nationally price for a gallon of gas averaged $3.40, according to AAA. That’s two cents higher than the previous week, but still 11 cents lower than a month earlier.

A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.

The economy is growing but at a sluggish pace. That is keeping a lid on price increases. Slow growth makes it harder for consumers and businesses to pay higher costs. The economy expanded at just a 1.9 percent annual rate in the January-March quarter. Many economists expect growth slowed further in the April-June quarter.

Wasatch Front inflation active in June

Consumer prices along the Wasatch Front rose sharply in June on a steep increase in the cost of medical care and little relief in the price of gasoline, Zions Bank said Tuesday.

The bank’s monthly consumer price index increased 0.5 percent from May to June on a non-seasonally adjusted basis. Over the past 12 months, the index has increased 3.3 percent.

After holding steady for most of the year, the price of medical care increased 2.5 percent, with most medical services posting hikes. The increase was the biggest jump since October.

Transportation costs rose 0.6 percent, but the increase wasn’t driven gasoline prices. Instead, escalating car rental and car insurance fees were responsible for what Zions said was a “modest” increase.

Pump prices fell for the first time in four months, dropping 2 cents per gallon from May to June, then fell another 10 cents by the end of the month.

Food costs along the Wasatch Front rose for the second consecutive month on 0.6 percent increases in both grocery and restaurant prices. Meat products accounted for most of the gain, reflecting the drought in the Midwest, which has stunted corn and grain crops grown to feed livestock.

“Meat prices are likely to maintain their upward momentum as the price of corn and other inputs increase,” Zions said in a statement.

Home prices climbed 0.2 percent on apartment rents and hotel room rates.