With last week’s welcomed news of robust jobs growth, and yesterday’s announcement that consumer prices fell in April for the first time in 13 months as energy prices tumbled and high unemployment limited the private sector’s ability to raise prices on the backs of consumers.
The 0.1% decrease in overall prices was pulled down by gas prices that are expected to drop further over the summer. Core inflation, which excludes volatile food and energy prices, was flat in April, according to the Labor Department report issued Wednesday. Core inflation is up just 0.9 percent over the past 12 months, the smallest increase since 1966.
The recession in 2007 and 2008 has kept inflation tame, giving the Federal Reserve leeway to keep interest rates at historic lows to help jump-start economic growth. Some economists worry about the possibility of deflation, a destabilizing period of falling prices. “With the unemployment rate below 10% and falling, it is entirely understandable that the Fed wants to stick with its commitment to leave rates at near-zero,” said Paul Ashworth, senior U.S. economist at Capital Economics.
In addition, recent reports, such as this one, indicate an upward trend in the index of leading economic indicators.
Source: Bloomberg.com Image: www.blog.voices.com