Declining cost of fuel helps to keep inflation low
By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — U.S. wholesale prices sank in April for the second straight month as the cost of gasoline and vegetables fell sharply.
The producer-price index declined by a seasonally adjusted 0.7% to mark the biggest drop in more than three years, the Labor Department said Wednesday. Economists surveyed by MarketWatch had predicted a 0.7% decrease in April, following a 0.6% decline in March.
Waning price pressures in April lowered the increase in wholesale costs over the past 12 months to 0.6% from 1.1%. That’s the lowest level since last summer.
The muted rate of inflation at both the producer and consumer levels gives the Federal Reserve more leeway to keep interest rates low though a strategy of buying huge amounts of mortgages and government debt. The central bank is trying to boost the economy by making loans cheap for businesses and consumers.
Lower inflation also gives consumers more purchasing power, a boon to Americans whose wages have stagnated since the Great Recession. Yet lower wholesale costs don’t always translate into falling prices of consumer goods and services. Companies alter prices for a number of reasons and are reluctant to cut them unless demand softens or competition intensifies.
Details of report
In April, the cost of fuel fell 2.5%, led by a 6.0% drop in gasoline prices. Electricity and home-heating-fuel costs also eased, though natural-gas prices posted the biggest increase since mid-2008. Cool weather in April likely contributed to the rise in natural-gas costs.
The price of food, meanwhile, fell 0.8% in April after jumping by the same amount in March. Vegetable prices plunged 10.6%, with the cost of squash, lettuce, celery and cucumbers all taking a dive. Meat prices also fell.
Excluding food and energy, core wholesale prices edged up 0.1% but they remained on the low side. The core rate is viewed by the Fed as a more useful gauge of underlying inflationary trends, but core CPI has only risen an unadjusted 1.7% over the past 12 months. That’s the same as in March and February.
The price index for intermediate goods, such as the cloth used to make clothes or stamped metal parts used in heavy machinery, dropped 0.6% last month.
Crude prices — the cost of raw materials — fell by 0.4% in April.
A better measure of whether Americans are paying more for goods and services, the consumer-price index, will be released Thursday. Economists surveyed by MarketWatch project CPI fell by 0.3% in April, also because of lower fuel prices.
Jeffry Bartash is a reporter for MarketWatch in Washington.
