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Falling Energy Costs Keep Inflation in Check, but Core Inflation Increasing

The Labor Department reported that consumer prices edged down 0.1% in March, as a drop in energy prices offset the biggest rise in tobacco prices in more than a decade. Core inflation, which excludes energy and food, rose 0.2% last month, matching the gains of the past three months. Over the past 12 months, consumer prices have declined 0.4%, the first one-year decrease since a similar drop for the year ending in August 1955. Over the past 12 months, core inflation has increased 1.8%. The recession is expected to tame inflation as job layoffs dampen wage pressures and weak demand prevents companies from raising prices. But, pointing to the rise in core inflation over the past year, some economists worry that moves by the Federal Reserve to fight the recession via stimulus measures could be paving the way for inflation troubles down the road. In March, energy prices fell 3%, gasoline prices declined 4%, home heating oil plunged 8.5% and natural gas fell 4.8%. Food prices dropped 0.1%. Most of the increase in prices outside of food and energy came from an 11% jump in tobacco prices.

Meanwhile, the Labor Department said wholesale prices fell 1.2% in March, following a 0.1% gain in February. The decline was attributed to falling energy and food prices. Gasoline prices plunged 13.1%, while the price of home heating oil declined 13.2%, the sharpest drops for both since December. Food prices fell 0.7%. Excluding food and energy, wholesale prices were unchanged. Wholesale prices have fallen 3.5% in the past year, the steepest drop in almost 60 years. But excluding food and energy, the core Producer Price Index has increased 3.8% in the last year.

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Date Last Updated: 04/20/2009