Consumer Prices Rose Less Than Expected in May
Bernie Mango returns the nozzle after pumping gas in North Andover, Mass. Monday, June 15, 2009. Gas prices rose Monday for the 48th straight day, matching a record going back to at least the 1970s, with prices now up nearly two-thirds since the beginning of the year even as demand from motorists remains weak. (AP Photo/Elise Amendola)
(Elise Amendola - AP)
TOOLBOX
   Resize
COMMENT
 Discussion Policy
 CLOSE
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
Who's Blogging  |
Thursday, June 18, 2009
Inflation remained subdued last month, the Labor Department said yesterday in a report that supports the view that prices are unlikely to rise significantly so long as the economy is operating well below its potential.
The consumer price index rose 0.1 percent, as an increase in gasoline and other energy prices was offset by declines in the prices of food and clothing. An index that excludes volatile food and energy prices also rose 0.1 percent. The modest increase in prices was in line with expectations, following several months in which inflation, though low, has exceeded what economists forecast.
Federal Reserve officials believe that inflation is not a major risk so long as there are high levels of extra capacity in the economy -- the unemployment rate is elevated, for example, and factories are operating at well below potential. The reasoning is that employers will not pay higher wages as long as they can easily hire others and consumers will not bid up the price of goods as long as businesses can easily ramp up production to meet increased demand.
Some analysts argue that the Fed, with its multitrillion-dollar efforts to boost economic growth, is setting the stage for inflation in the future, however, arguing that simply having vast amounts of money sloshing around the economy could cause prices to rise.
The May inflation information "tends to play in favour of the Fed output gap view of the world," said Alan Ruskin, chief international strategist at RBS Greenwich Capital, a division of the Royal Bank of Scotland. "With so much excess capacity, inflation will remain subdued, leaving plenty of policy flexibility."
The steepest rise was in the price of transportation, which was up 0.8 percent, driven by higher fuel costs. Prices also rose for medical care (up 0.3 percent) and education and communication (up 0.3 percent). The steepest decreases were in the price of food and beverages (down 0.2 percent) and apparel (down 0.2 percent).
Also today, the Commerce Department said that the current account deficit narrowed in the first three months of the year. The current account deficit measures how much the nation is importing and receiving in foreign investment vs. what it is exporting and investing elsewhere, and is a broad measure of the extent to which the nation is living within its collective means.
The current account deficit narrowed to 2.9 percent of gross domestic product, or $101.5 billion in the first quarter, from 4.3 percent in the fourth quarter of 2008. The drop happened as the nation's imports fell faster than exports, and in particular because of lower prices for energy imported from abroad.
