U.S. News: Prices Drop but Threat Of Deflation Is Remote
U.S. consumer prices registered their steepest one-year drop in April in more than a half century, but the risk of deflation remains remote since the declines were mainly in energy and energy-related products.</br></br>On a monthly basis, the consumer-price index was unchanged in April from March, the Labor Department said Friday. However the core CPI, which excludes food and energy prices, jumped 0.3% last month, the largest increase since June 2008. A 9.3% rise in tobacco prices generated about 40% of the core CPI increase as a federal excise tax kicked in. It was the second-straight month that tobacco lifted the core index.</br></br>Separately, U.S. industrial production fell 0.5% in April, its 15th decline in 16 months, an indication that businesses continue to draw down inventories in the face of weak demand. Meanwhile, a gauge of consumer sentiment by Reuters and the University of Michigan rose to 67.9 in mid-May, from 65.1 in April. That suggests some improvement in confidence, although the index remains low by historical standards.</br></br>"I still think there are some sources of optimism," White House economic adviser Austan Goolsbee said in an interview Friday. But until the economy stops shedding more than 500,000 jobs a month, he said, "keep your hands and arms inside the car with your seatbelt fastened. We've still got a bumpy ride to go."</br></br>Consumer prices fell 0.7% compared with one year ago, the largest 12-month decline since June 1955. It's also significantly under the 2% annual rate of inflation that most Federal Reserve officials think is consistent with their dual mandate of price stability and maximum employment.