Until the last two months-March and April– the cost of living or inflation had not declined two consecutive months since late 2008.For April 2013, the consumer price index decreased 0.4 percent compared to 0.2 percent the prior month, according to the U.S. Commerce Department.
It’s the largest decline since December 2008. The core price measurement increased 0.1 percent –a bigger gain than expected.
Falling gasoline prices lead the way
According the Department of Commerce report, cheaper gasoline prices have offset higher payroll taxes and miniscule wage gains. These elements have combined to provide consumers with more disposable income for other purchases.
Other goods and services measured by the index showed slight price gains. These subdued increases give the Federal Open Market Committee (FOMC) flexibility to make policy changes if they see fit to do more to stimulate the economy, which is expected to grow at about 1.8 percent for the second quarter.
The energy index decreased 4.3 percent compared to March. Under this category, the fuel oil index declined but the electricity and natural gas indexes climbed 0.5 percent and 4.4 percent, respectively.
The AAA listed the average price for a gallon of gasoline as $3.55 last month, down from an average of $3 69 in March. As of Wednesday, of a gallon of gasoline averaged a price of $3.60.
The following indexes also experienced increases:
* Shelter – 0.2 percent
* Used cars and trucks – 0.6 percent
* New vehicles – 0.3 percent
* Tobacco – 0.6 percent
The all items overall index is up 1.1 percent on a year-over-year basis—its smallest increase since November 2010.
The core index measures the long-run trend for the price level of goods and service, but excludes the volatile prices for food and energy. The FOMC, analysts, investors companies and policy makers prefer to examine inflation data that excludes “temporary” price changes.
Hospital costs and associated services decline 0.6 percent – the biggest one month decrease on record. Lower pricing for apparel (0.1%), air fares (0.3%) and medical services (0.7%) held core inflation in check with just a 0.1 percent gain in April– the same reading as March.
One of the effects of subdued inflation is better buying-power of take-home pay. Based on a report by the U.S. Department of Labor, the price-adjusted average hourly earnings for workers increased 0.5 percent. This index has climbed 0.8 percent in the last year, which represents biggest increase recorded since October 2009.
Economist Laura Rosner of New York- based BNP Paribas believes that “very aggressive declines in gasoline prices” has filtered through to “other goods and services.” Furthermore, “the Fed is watching the weakness in core inflation. It’s not their baseline assumption that the weakness will continue or worsen, but if it did, that would be a serious concern and would make them think about a response,” said Rosner.