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Consumer prices were unchanged in April as both food and energy costs declined to offset gains elsewhere.
WASHINGTON – Consumer prices were unchanged in April as both food and energy costs declined to offset gains elsewhere. Prices over the past year fell by the largest amount in more than a half-century, the government said Friday.
The disappearance of inflation has been a product of the country's deep recession as surging job layoffs dampen wage pressures and weak consumer demand keeps a lid on price increases. Some economists are worried about a dangerous bout of falling prices, but most say that possibility remains remote because the Federal Reserve has responded with force to combat the current downturn.
Meanwhile, the Fed said the nation's industrial production fell in April by the smallest amount in six months, more evidence that the pace of the economy's decline is slowing.
The Labor Department said its Consumer Price Index was flat last month, meeting economists' expectations. The docile inflation performance reflected a second monthly drop in energy costs and a third straight decline in food prices.
Over the past year, consumer prices have fallen 0.7 percent, the largest 12-month decline since a similar drop for the 12 months ending in June 1957.
A destabilizing period of falling prices has not been seen in the U.S. since the Great Depression of the 1930s, although Japan suffered through a period of deflation in the 1990s.
The Fed says output by the nation's factories, mines and utilities fell 0.5 percent last month, after revised declines of 1.7 percent in March and 1 percent in February. Analysts expected a drop of 0.6 percent last month.
Still, the report showed U.S. industry remains weak. Industrial production has fallen in 15 of the 17 months since the recession began in December 2007, and is down 16 percent since then.
Core inflation, which excludes food and energy, rose 0.3 percent last month, the biggest jump since July. However, 40 percent of April's gain came from a huge rise in tobacco prices, reflecting an increase in federal taxes.
Consumers in the U.S. and overseas — fearful of losing their jobs or homes — likely will remain cautious spenders in the months ahead, a Fed official said Friday.
"Under these conditions, I envision a slow recovery," Richard Fisher, president of the Federal Reserve Bank of Dallas, said in prepared remarks to a banking convention in San Antonio, Texas. "Not a V-shaped snapback — nor even a U-shaped one — but a very slow slog as we find a more sensible and sustainable mix between consumption and savings and investment."
Energy prices dropped 2.4 percent in April and are down 25.2 percent over the past 12 months, as prices retreat from record-highs set last spring and summer. Food costs fell 0.2 percent in April as the price of dairy products dropped sharply.
Most economists believe inflation will not be a threat for a prolonged period. The CPI followed a report Thursday that prices rose 0.3 percent in April, but fell 3.7 percent over the past 12 months, the biggest decline since 1950.
The concerns about deflation are muted in this country because of the aggressive actions taken so far by the Fed. The central bank has pushed a key interest rate to a record low near zero and has taken a number of other measures to flood the banking system with cash to deal with a severe credit crisis.
There are more worries about deflation in other parts of the world. Prices have been falling again in Japan, China and India as the global economy deals with what the International Monetary Fund has said will be the worst global downturn since the 1930s.
A year ago, the Fed was worrying about the threat of runaway inflation as prices for crude-oil and other energy products hit record-highs. But since last fall when the financial crisis hit, the Fed switched its focus to boosting economic growth.
"The recent pressures have been to the deflationary side, though we seem to have beaten that back," Fisher said.
