Consumer price drop is biggest since '55

Government says 0.7% annual decline is the largest in nearly 54 years. Monthly prices unchanged.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Ben Rooney, CNNMoney.com staff writer

Do you think the changes being made at Chrysler and General Motors will save the companies?
  • Yes, both of them
  • Only GM
  • Only Chrysler
  • Neither

NEW YORK (CNNMoney.com) -- A key index of prices paid by consumers fell at the sharpest rate since August 1955 due to historically low energy prices, the government said Friday.

The Labor Department said the Consumer Price Index declined 0.7% on an annual basis in April, only the second year-over-year decline in nearly 54 years following March's 0.4% drop.

On a monthly basis, consumer prices were unchanged, in line with the consensus estimate of economists surveyed by Briefing.com.

The overall index was affected by a sharp decline in energy prices, which fell 2.4% in April, and are down 25.2% on an annual basis.

Oil prices averaged about $50 a barrel in April, down 55% from an average of about $112 a barre in April of 2008.

"When oil prices go up to near $150 and then fall sharply, your going to have an impact on CPI," said Bob Brusca, an economist at FAO Economics in New York.

While oil prices have trended higher recently as investors respond to signs of economic stabilization, there's no reason to think inflation will rebound anytime soon given the near-term outlook, Brusca said.

"There's a lot of slack in the economy, and so there's not much reason to fear inflation," he said.

Meanwhile, prices excluding food and energy, the so-called core CPI, rose 0.3% in April, after a 0.2% rise the month before. Economists were expecting a 0.2% gain. Core consumer prices were up 1.9% on an annual basis.

The increase in core CPI was due to a 9.3% rise in prices for tobacco and smoking products, which jumped 11% in March. Retailers have boosted tobacco prices in response to a federal tax hike that went into effect April 1.

Excluding tobacco prices, core inflation rose 0.2% in April, according to Aaron Smith, senior economist at Moody's Economy.com.

"There has been some genuine acceleration in core prices and that should put to rest fears of near term tilt into deflation," Smith said.

Deflation, a widespread drop in prices, is a sign of economic weakness. Lowering prices is one way businesses can cope with falling demand. But if companies can't earn a profit selling their products at lower prices, they could be forced to cut production or lay off workers, which speeds up the pace of economic deterioration.

At the same time, Smith said the weak economy will keep "disinflationary force" on CPI for at least another year, "since slack does indeed matter." To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
Want to buy -- and live in -- a piece of history? It's not that far out of reach. These historic homes are not only for sale, they are incredible bargains. More
5 ways retailers are tracking you If you think pesky salespeople are invading your personal space, check out these 5 technologies that are tracking your movements throughout a store. More
Moto X vs. Droid Turbo: Which Droid should you buy? Motorola has made the two best Android smartphones this year. Here's how they stack up. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.