CONSUMER-PRICE-INDEX
Definition: A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care
Gas’s Drop Drives U.S. Into Deflation Territory
Consumer-price gauge shows 0.1% year-over-year decline in January, first since October 2009, amid sharp fall in gas costs
By ERIC MORATH
Updated Feb. 26, 2015 5:41 p.m. ET
The U.S. in January saw its first dip in overall consumer prices in more than five years. But the economy is far from the precipice of debilitating Japanese-style deflation.
Driven by a tumble in oil prices since mid-2014, the consumer-price index fell 0.1% in January from a year earlier, the Labor Department said Thursday. It was the first year-over-year decrease since October 2009. Prices fell 0.7% from December.
While the reading indicates little upward price pressure across the U.S. economy, it’s different from the downward forces plaguing other major economies.
We haven’t suddenly become the eurozone or Japan,” said Richard Moody, chief economist at Regions Financial Corp. The dip in overall prices doesn’t reflect the “underlying health of the U.S. economy.”
In Japan and parts of Europe, negative forces such as weak demand and constrained credit caused a drop in prices for a broad swath of goods and services.
In the U.S., falling consumer prices can be pinpointed to a single sector: energy. Energy costs fell almost 20% over the past year, and gasoline prices alone fell by more than a third.
Consumer prices outside of energy advanced a healthy 1.9% in January from a year earlier. Prices for many staples are growing even faster. Food costs are up 3.2% from a year earlier, shelter costs rose 2.9% and medical care advanced 2.3%.
Removing both food and energy costs, consumer prices rose 0.2% last month and are up 1.6% from January 2014. The year-over-year change in so-called core prices held steady in January from December, after trending down from a recent peak of 2% last May.
Stabilization in those figures could show Federal Reserve officials that underlying inflation remains consistent with an improving economy.
The Fed has set a 2% target for annual inflation as consistent with its legal mandate to keep prices stable. But the central bank prefers a different broad measure, the Commerce Department’s personal consumption expenditures price index. Using that gauge, inflation has undershot 2% for more than 2½ years.
For now, the slowdown will be a factor as policy makers weigh when to start raising short-term interest rates, a move that could come as early as June.
John Williams, president of the Federal Reserve Bank of San Francisco, said in an interview with The Wall Street Journal on Thursday that he believes inflation will rise to the Fed’s desired level by the end of 2016.
He also said falling short on the inflation target won’t necessarily stay the Fed’s hand on rate increases. Because Fed rate actions have to take account of their impact over the long run “it’s very likely we would start raising interest rates even with inflation below 2%,” he said.
Fed Chairwoman Janet Yellen, in testimony to Congress this week, said weak inflation is due to the “transitory effects of lower energy prices.” But, she cautioned, inflation outside of food and energy “has also slowed since last summer, in part reflecting declines in the prices of many imported items and perhaps also some pass-through of lower energy costs into core consumer prices.”
Consistent with policy makers’ thinking, the steep fall in energy prices could soon abate. The average price for a gallon of regular gasoline has climbed about 30 cents since the start of February, according the U.S. Energy Information Administration. A reversal in energy costs should cause the overall price index to advance in February for the first time since October.
Meanwhile, an easing of inflation is helping to raise Americans’ spending power. A separate report Thursday showed inflation-adjusted wages posted the largest gain since November 2008. Real average hourly earnings move up 1.2% from December, reflecting both falling prices and a 0.5% increase in wages.
“The big decline in gasoline prices in recent months will allow consumers to boost their spending on other items in 2015,” PNC chief economist Stuart Hoffman said.
A tightening labor market could finally be exerting some upward pressure on wages. U.S. employers have added to payrolls at the fastest clip since the late 1990s in recent months and the unemployment rate stood at 5.7% in January, down from 6.7% a year earlier.
Several firms, including Wal-Mart, Aetna and Starbucks, have recently announced raises for a large swath of their staffs. “The labor market strengthening is clearly one of the contributing factors to the strength of our business overall,” Domino’s Pizza Inc. Chief Executive Patrick Doyle told investors Tuesday. “If that puts a little bit of pressure on wages as well, that’s an OK thing because there’s a big offset in terms of a healthier economy.”
—Michael S. Derby contributed to this article.#
Consumer-price gauge shows 0.1% year-over-year decline in January, first since October 2009, amid sharp fall in gas costs
By ERIC MORATH
Updated Feb. 26, 2015 5:41 p.m. ET
The U.S. in January saw its first dip in overall consumer prices in more than five years. But the economy is far from the precipice of debilitating Japanese-style deflation.
Driven by a tumble in oil prices since mid-2014, the consumer-price index fell 0.1% in January from a year earlier, the Labor Department said Thursday. It was the first year-over-year decrease since October 2009. Prices fell 0.7% from December.
While the reading indicates little upward price pressure across the U.S. economy, it’s different from the downward forces plaguing other major economies.
We haven’t suddenly become the eurozone or Japan,” said Richard Moody, chief economist at Regions Financial Corp. The dip in overall prices doesn’t reflect the “underlying health of the U.S. economy.”
In Japan and parts of Europe, negative forces such as weak demand and constrained credit caused a drop in prices for a broad swath of goods and services.
In the U.S., falling consumer prices can be pinpointed to a single sector: energy. Energy costs fell almost 20% over the past year, and gasoline prices alone fell by more than a third.
Consumer prices outside of energy advanced a healthy 1.9% in January from a year earlier. Prices for many staples are growing even faster. Food costs are up 3.2% from a year earlier, shelter costs rose 2.9% and medical care advanced 2.3%.
Removing both food and energy costs, consumer prices rose 0.2% last month and are up 1.6% from January 2014. The year-over-year change in so-called core prices held steady in January from December, after trending down from a recent peak of 2% last May.
Stabilization in those figures could show Federal Reserve officials that underlying inflation remains consistent with an improving economy.
The Fed has set a 2% target for annual inflation as consistent with its legal mandate to keep prices stable. But the central bank prefers a different broad measure, the Commerce Department’s personal consumption expenditures price index. Using that gauge, inflation has undershot 2% for more than 2½ years.
For now, the slowdown will be a factor as policy makers weigh when to start raising short-term interest rates, a move that could come as early as June.
John Williams, president of the Federal Reserve Bank of San Francisco, said in an interview with The Wall Street Journal on Thursday that he believes inflation will rise to the Fed’s desired level by the end of 2016.
He also said falling short on the inflation target won’t necessarily stay the Fed’s hand on rate increases. Because Fed rate actions have to take account of their impact over the long run “it’s very likely we would start raising interest rates even with inflation below 2%,” he said.
Fed Chairwoman Janet Yellen, in testimony to Congress this week, said weak inflation is due to the “transitory effects of lower energy prices.” But, she cautioned, inflation outside of food and energy “has also slowed since last summer, in part reflecting declines in the prices of many imported items and perhaps also some pass-through of lower energy costs into core consumer prices.”
Consistent with policy makers’ thinking, the steep fall in energy prices could soon abate. The average price for a gallon of regular gasoline has climbed about 30 cents since the start of February, according the U.S. Energy Information Administration. A reversal in energy costs should cause the overall price index to advance in February for the first time since October.
Meanwhile, an easing of inflation is helping to raise Americans’ spending power. A separate report Thursday showed inflation-adjusted wages posted the largest gain since November 2008. Real average hourly earnings move up 1.2% from December, reflecting both falling prices and a 0.5% increase in wages.
“The big decline in gasoline prices in recent months will allow consumers to boost their spending on other items in 2015,” PNC chief economist Stuart Hoffman said.
A tightening labor market could finally be exerting some upward pressure on wages. U.S. employers have added to payrolls at the fastest clip since the late 1990s in recent months and the unemployment rate stood at 5.7% in January, down from 6.7% a year earlier.
Several firms, including Wal-Mart, Aetna and Starbucks, have recently announced raises for a large swath of their staffs. “The labor market strengthening is clearly one of the contributing factors to the strength of our business overall,” Domino’s Pizza Inc. Chief Executive Patrick Doyle told investors Tuesday. “If that puts a little bit of pressure on wages as well, that’s an OK thing because there’s a big offset in terms of a healthier economy.”
—Michael S. Derby contributed to this article.#
The average of prices are decreasing for consumer goods.