Gas Price Drop Lowers CPI

A dollop of good news about inflation doesn’t erase energy’s long-range upward tug on consumer prices, however.
Ed ZwirnAugust 18, 2004

Moderate news on the inflation front and a Labor Department report showing that consumer prices actually fell in July gave comfort to investors who are worried about potential price hikes.

The U.S. Labor Department reported a 0.1 percent drop in the Consumer Price Index (CPI) for July, said the Associated Press. That’s the first decrease since a 0.2 percent drop last November, according to the news service. Sharp declines in gasoline prices were credited for both the July and November price declines.

The July price decline, however, only partly makes up for lost ground. For example, the CPI rose 0.6 percent in May and 0.3 percent in June because of big jumps in energy costs, according to the DOL.

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Through the first seven months of this year, consumer prices have been rising at an annual rate of 4.1 percent, sharply higher than the 1.9 percent increase for all of 2003, the department reported.

The acceleration reflects a big jump in energy prices, however, and there is so far no indication that price pressures from energy are going to spill over and cause more general inflation. The core rate of inflation — which excludes volatile energy and food prices — has been rising at a more moderate annual rate of 2.4 percent, up from a small 1.1 percent increase in 2003, according to the DOL. In fact, excluding energy and food, consumer prices rose a tiny 0.1 percent in July, matching the June increase.

Analysts have said that energy represents the biggest variable that could rekindle inflation and endanger the current recovery. Crude oil has hit record price levels in recent weeks, prompted by instability in the Middle East and concern over oil supplies in countries such as Venezuela — where President Hugo Chavez has survived a recall election — and Russia — where Yukos, a major oil company, teeters toward bankruptcy.