Drop in gas prices lowered inflation

First Posted:

conomics Writer

WASHINGTON — Consumer prices fell last month for the first time in a year because of a steep drop in gas costs.
But Americans paid more for autos, clothes and hotel stays, driving prices outside of volatile food and energy costs up.
The Consumer Price Index fell 0.2 percent in June, the Labor Department said Friday. Gas prices fell 6.8 percent, the steepest decline in two and a half years.
After excluding volatile food and gas costs, core prices rose 0.3 percent. That was the second straight monthly gain and the largest back-to-back increase since the summer of 2008.
Many of the trends driving the increase in the core index are expected to fade by next year. New car prices rose 0.6 in June, after jumping 1.1 percent in May. Those increases reflect supply shortages stemming from Japan’s earthquake, which should ease in the fall.
Rising gas and food prices caused inflation concerns earlier this year. In the 12-month period from May 2010 to June 2011, consumer prices rose 3.6 percent. The yearly gain in the index was only 1.1 percent as recently as November.
Core prices have been much tamer. They increased only 1.6 percent in the past year.
That’s below the Federal Reserve’s preferred target of 2 percent.
Some inflation can be healthy for the economy because it encourages people to spend and invest rather than sitting on their cash. More spending drives corporate growth, which makes businesses more likely to hire people.
Low inflation allows the central bank to keep the short-term interest rate they control at a record low near zero, where it has been since December 2008.
Federal Reserve chairman Ben Bernanke has said that recent price increases are likely to be temporary. High unemployment makes it unlikely that workers can press for more wages, which in turn makes it hard for companies to raise prices.
Fed policymakers expect core consumer inflation to average between 1.5 percent and 1.8 percent this year.