U.S. consumer prices fell for the first time in two years in May, with the significant decline fueled by lower energy prices, according to figures released Thursday by the Labor Department.
The consumer price index, a measure of inflationary pressure on the economy, fell by 0.3 percent in May. The largest monthly decline since December 2008 was a modest surprise to economists expecting consumer prices to fall at a slightly slower 0.2 percent pace.
After two months in a row of no headline inflation, consumer prices were up only 1.7 percent compared to May 2011.
Rob Carnell, chief international economist at ING, said, "The fall in consumer prices will eventually provide a boost to both the household and corporate sectors, as it stems from lower fuel costs."
"But it may be several months before we start to see some evidence of the power of low fuel prices in other activity data," he added. "Market sentiment will struggle to become more optimistic until until then."
Driving the drop in overall consumer consumer prices was a 6.8 percent decline in the gasoline index, which in turn led to a 4.3 percent drop in the overall energy index.
Food prices at the consumer level remained relatively steady in May - no change according to DOL statistics - after a 0.2 percent increase in April.
Excluding the volatile food and energy sectors, "core" consumer prices rose by 0.2 percent in May, matching similar increases in both April and March.
A 1 percent increase in the cost of used cars and trucks for May, though less than the 1.5 percent increase recorded in April, contributed to the rise in core consumer prices as did a 0.4 percent increase in medical care costs - the largest increase in that index since November 2011.
On a year-over-year basis the index for core consumer prices has risen 2.3 percent, driven by increases in costs of apparel, medical care and used vehicles.
The decline in consumer prices contributed to a 0.3 percent increase in real average hourly earnings, boosted by a 0.1 percent gain in average hourly earnings.
That increase in real average hourly earnings was enough to offset a 0.3 percent decline in the average workweek, putting real average weekly earnings in the U.S. up 0.1 percent in May.
by RTT Staff Writer
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