Could the historic fall of the Consumer Price Index be a warning sign of deflation, or is it just a symptom of the steep fall in energy prices? Economist Stuart Hoffman seems to think it is the latter. See the following article from Money Morning to learn more.
Rising gas prices were the biggest contributor to an increase in the Consumer Price Index (CPI) from May to June, but year-over-year prices saw their biggest drop in almost 60 years.
June’s seasonally adjusted CPI increased 0.7% following May’s 0.1% rise, according to the latest report from the U.S. Department of Labor. Prices fell 1.4% compared to June 2008, largely due to a 25.5% decline in the energy index. The core CPI, which excludes gas prices, rose 0.2%.
Some economists consider June’s CPI skewed by last year’s record-high gas prices.
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“It’s a bit of a bogus comparison, because we’re comparing gas prices at nearly their astronomical peak last year,” said PNC Financial Services (NYSE: PNC) economist Stuart Hoffman in an interview with CNN Money. “It’s comforting to know gas prices are the main fly in the ointment. That shows inflation is not a concern.”
Gas prices have abated from June’s average $2.64 per gallon to $2.52 per gallon in the week ended July 13, Bloomberg News reported, citing data from AAA.
Falling gas prices, which as of today (Wednesday) were at a national average of $2.50 per gallon, could take some pressure off the wallets of consumers, who many economists are counting on to be key players in the economic recovery. The CPI news follows Tuesday’s report that retail sales in June grew 0.6% including gas sales, and 0.3% excluding the category.
“The thrill of shopping is not yet back,” said Joel Naroff, president and chief economist at Naroff Economic Advisors, Inc. “People are starting to loosen their grips on their wallets, but only at a modest pace.”
The core CPI’s increase was led by gains in new and used car prices rose 0.4% in June, a month that saw auto sales rise 2.3% according to a Commerce Department report released Tuesday.
This article has been republished from Money Morning. You can also view this article at Money Morning, an investment news and analysis website.