Consumer prices rise less than expected in May
Consumer prices rose less than expected in May and posted the steepest annual drop in 59 years, according to government data released Wednesday, fresh evidence that the recession is keeping inflation in check.
Low prices will make it easier for the Federal Reserve at its meeting next week to keep a key short-term interest rate near zero, where it has been since December. Bond yields ticked up earlier this month on concerns that signs of an improving economy would force the Fed to raise rates later this year.
But most economists consider a rate increase unlikely until next year.
Still, as higher government spending pushes this year’s deficit toward a record of nearly $1.85 trillion, many economists warn that inflation could be a threat in two or three years.
“Inflation may be coming, but it’s not here yet and likely won’t be for some time,” Richard Moody, chief economist at Forward Capital, wrote in a note to clients.
The Labor Department reported that the consumer price index rose a seasonally adjusted 0.1% last month, below analysts’ expectations of a 0.3% rise.
Excluding volatile food and energy costs, core prices also increased 0.1%, matching expectations.
The recession is holding down prices as the unemployment rate has reached a 25-year high and factories are operating at record-low levels. Workers concerned about their jobs are less likely to push for higher pay, while low consumer demand has made it difficult for companies to raise prices.
Also, the Commerce Department said Wednesday that the current-account trade deficit dropped to $101.5 billion in the first quarter, down 34.5% from the fourth quarter. It was the lowest current account deficit since the final quarter of 2001, when the country was mired in the last recession.
Gasoline prices increased 9.6% in May, before seasonal adjustment, the Labor Department said. But they are still much lower than last year, when prices at the pump topped $4 a gallon during the summer.
That decline resulted in consumer prices falling 1.3% in the 12 months that ended in May, the steepest drop since 1950. The core CPI has increased 1.8% since last year.
Food prices in the U.S. fell for the fourth straight month in May, as costs fell for all six of the major grocery food groups, including fruits and vegetables, meats and poultry, and dairy products.
