Falling gasoline prices pulled inflation lower last month, as consumer prices dropped 0.3% after being unchanged in April, the government said Friday. A government report also showed first-time claims for unemployment benefits the week ended June 9 rose 6,000 to 386,000, reflecting a weaker-than-desire jobs market.
The Consumer Price Index was led lower by a 4.3% drop in the price of energy, coupled with no change in food prices, the Bureau of Labor Statstics reported. Excluding food and energy, whose prices are more volatile than the rest of the economy, the so-called core inflation rate climbed 0.2%, the third straight increase of 0.2%. Economists had expected the overall CPI to drop 0.2%, according to Moody's Analytics.
The drop was telegraphed by a 1% decline in wholesale prices for May announced Wednesday. Inflation in consumer prices for the last 12 months rose just 1.7%, as the economy's recent hiccups dampened any fears that prices would soon spike broadly. The figure has been dropping steadily since it peaked recently at 3.9% in September 2011.
However, the modest inflation isn't likely to translate into fresh initiatives by the Federal Reserve to pump money into the economy even though growth has slowed this year, said Joel Naroff, president of consulting firm Naroff Economic Advisors.
"We knew it would be down, and knew energy would be down very sharply,'' said Naroff. "On the core inflation rate, everybody predicted 0.2% (gain). The Federal Reserve has lived with that number for a long time, and it won't make them say we have to slow the economy down.''
The few pockets of inflation there are show the fragile condition of the economy, Naroff said. A 1% increase in the price of used cars shows many people are looking for less-expensive alternatives to buying new vehicles, he said. Medical services climbed 0.5%, reflecting the long-standing higher inflation in health care.
Low inflation could help consumers in an economy that has been slowing down, said Nigel Gault, chief economist at IHS Global Insight.
On the employment front, the four-week moving average of initial claims for jobless benefits, considered a more reliable gauge of activity in labor markets, rose 3,500 to 382,000 from a revised average a week earlier of 378,500, the Labor Department said.
It is a welcome sign that the increases in the weekly figure and the four-week moving average are lower than they have been in the past few weeks. However, jobless claims above 375,000 over at least a month or two is what's needed to lower the 8.2% unemployment rate.
"The (inflation) news is good for consumers, since it signals relief at the gasoline pump and at the grocery store,''Gault wrote in a report yesterday. ``It will help prop up spending against a gloomier labor-market backdrop. It's also good news for producers (except for those in the commodity business), since it shows cost pressures easing."
The report showed prices stable, or close to it, for nearly all major consumer goods.
New-car prices rose 0.2%, while electricity rates rose 0.3% and piped gas used for heating and cooking plunged 4.1%, reflecting sharply lower prices for natural gas. Clothing prices rose by 0.4% and the cost of medical services climbed 0.5%, while shelter costs rose 0.2%.
USA Today