WASHINGTON – U.S. consumer prices were flat last month as cheaper gas offset modest increases for food, clothing and housing. The data indicate that inflation remains in check.
The Labor Department said Tuesday that the seasonally adjusted consumer price index was unchanged in April, after a 0.3 per cent gain in March. Excluding volatile food and gas costs, so-called “core” prices rose 0.2 per cent. That was the same as in March.
Over the past 12 months, prices have risen 2.3 per cent, the smallest increase in more than a year. Core prices have also risen 2.3 per cent in the past year, close to the Federal Reserve’s inflation target of 2 per cent.
Gas prices fell 2.6 per cent in April, the biggest decline in six months. Food prices and housing costs both ticked up 0.2 per cent.
Inflation has eased since last fall, outside of a spike in gas prices earlier this year. But gas prices appear to have peaked in April and have since fallen sharply.
The national average fell to $3.73 a gallon on Monday, roughly 17 cents cheaper than a month ago, according to a survey by AAA.
Mild price increases leave consumers with more money to spend, which tends to boost economic growth. Lower inflation also gives the Fed more leeway to keep interest rates low.
Still, Americans are seeing little growth in wages. Workers’ average hourly earnings have risen just 1.3 per cent in the 12 months, roughly half the pace of inflation over that same period.
Without more jobs or higher pay, consumers could be forced to cut back on spending later this year. Consumer spending is critical because it accounts for 70 per cent of economic activity.
A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.
The Fed last month reiterated that it planned to keep its key interest rate at a record low through at least late 2014. That’s not likely to change when the Fed next meets on June 19-20.
The Fed acknowledged that rising energy prices have boosted inflation. But Fed Chairman Ben Bernanke contends that the boost in inflation should be temporary and will recede as energy prices retreat.