US Consumer Prices Fall 0.2% in September

15 Oct 2015 | Author: | No comments yet »

Consumer prices fall 0.2 per cent in September, pulled down by freefall in gasoline prices.

The consumer price index fell 0.2 per cent in September, following a 0.1 per cent drop in August. WASHINGTON • U.S. consumer prices recorded their biggest drop in eight months in September as the cost of gasoline fell, but a steady pick-up in underlying price pressures should allay fears that a disinflationary trend was reasserting itself.The consequences of inflation slowing further and staying low would be devastating to the U.S. economy, and Federal Reserve policy makers are right to be wary of deflationary forces. The so-called core price measure, which strips out often-volatile food and fuel, climbed 0.2 percent, the most in three months, a Labor Department report showed Thursday in Washington.

Ever since the economy tanked in late 2008, getting people back to work has been the main preoccupation of the Fed, as it’s tried to stimulate the economy with ultra-low interest rates and with massive purchases of bonds. The Federal Reserve is looking for signs that inflation will drift back toward their 2 percent target as they try to time their first interest-rate increase since 2006. This shift from worrying about jobs to worrying about disinflation — a period of falling prices that sometimes precedes deflation — is the main reason the Fed decided to refrain from raising interest rates this summer, as it was widely expected to do. The slowdown in global growth, the strengthening of the dollar, further declines in commodity prices and the selloff in financial markets altered the outlook for U.S. growth and inflation. Expectations of a lift-off in the U.S. central bank’s short-term interest rate have been dealt a blow by an abrupt slowdown in job growth in the last two months and softening economic activity because of a strong dollar, lower oil prices and a weakening global economy.

That equaled the low reached in mid-July as the fewest since November The drop in consumer prices matched the median of 79 economists in a Bloomberg survey. The nationwide average cost of a gallon of regular gasoline was $2.30 as of Wednesday, compared with $3.19 a year ago, according to AAA, the biggest U.S. auto group. Those low levels of inflation are frustrating for the Fed, which has failed to hit its 2% target for PCE inflation for more than three years now and likely won’t hit that 2% goal until 2017.

Low inflation may sound like the kind of problem everyone would like to have — who doesn’t like low prices? — but it’s actually harmful to the economy because low inflation increases the burdens of debt, reduces hiring, keeps wages down and contributes to weaker competitiveness in global markets. Fed officials have said sluggish inflation is tied to transitory factors such as falling oil costs, though their preferred measure of price pressures linked to consumer spending hasn’t reached the central bank’s 2 percent goal since April Policy makers want to be reasonably confident that inflation is rising toward that target before raising their benchmark interest rate. The so-called “core” measures of inflation (which strip out food and energy prices in order to get a better view of underlying inflationary trends) aren’t that much higher: 1.8% for the core CPI and 1.3% for the core PCE.

However policy divisions were exposed this week as Governors Daniel Tarullo and Lael Brainard argued that the current environment may warrant patience on raising rates. Fed Chair Janet Yellen has said she expects it will be appropriate to raise rates before the end of this year, provided the economy grows as the central bank predicts. No one really expects the price of crude oil CLX5, -1.59% to fall another 50% in 2016 (as it has in the past 12 months), so there’s no reason to think that energy prices will continue to exert such a powerful deflationary drag on U.S. inflation.

The Labor Department’s gauge of wholesale prices, which includes 75 percent of all U.S. goods and services, fell 0.5 percent in September and followed an unchanged reading the prior month, data showed Wednesday. Thursday’s consumer-price report also indicated retired workers receiving Social Security benefits will receive no cost of living adjustment in 2016.

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