US consumer prices drop 0.2 pct on cheaper gas

[April 17, 2013]  WASHINGTON (AP) -- U.S. consumer prices declined last month as the cost of gas fell sharply and food prices were unchanged. The tame reading is the latest evidence that the sluggish economy is keeping inflation in check.

The consumer price index declined a seasonally adjusted 0.2 percent in March, after jumping 0.7 percent in February, the Labor Department said Tuesday. Gas prices fell 4.4 percent, reversing part of February's 9.1 percent gain.

The figures come a day after the prices of many commodities, including copper and oil, fell in response to a report of slower than expected growth in China. That suggests U.S. consumer prices will likely stay low in the coming months.

The drop "marks the start of what will likely turn out to be a string of declines stretching into the summer," Paul Ashworth, an economist at Capital Economics, said in a note to clients.

Wholesale gas prices and crude oil have continued to fall in April. Ashworth noted that usually prices increase in the spring ahead of the summer driving season.

Except for February's large increase, consumer prices have declined or been unchanged in four of the past five months. In the past year, consumer prices have risen 1.5 percent. That's the smallest yearly increase in the past eight months.

Excluding the volatile food and energy categories, core prices rose 0.1 percent. In the 12 months ending in March, they rose 1.9 percent. That's below the Federal Reserve's inflation target of 2 percent.

That gives the Fed the leeway to continue its extraordinary efforts to stimulate the economy.

Tame inflation also leaves consumers with more money to spend, which spurs more economic growth.

In February, consumer prices jumped by the most in more than three years, mostly because of a big increase in energy costs. Gas prices rose by the largest amount in more than 3 1/2 years.

Since then, gas has gotten cheaper. Gas prices averaged $3.53 nationwide on Monday, according to AAA. That's 16 cents lower than a month ago.

Other prices also fell last month, the department said. Clothing prices dropped 1 percent, the most in 12 years. That likely reflected widespread discounting of spring clothes, since March was colder than usual. And furniture prices dropped 0.3 percent.

Core prices were pushed up by small increases in rent and new cars. Used cars and trucks jumped 1.2 percent and airline fares rose 0.6 percent.

Mild inflation gives the Fed the room to keep pursing policies to spur faster economic growth. The Fed is keeping a key short-term interest rate it controls at nearly zero until unemployment falls at least to 6.5 percent. It is also buying about $85 billion in Treasury securities and mortgage-backed bonds in an effort to keep longer-term interest rates low and spur more borrowing and spending.

However, some economists have raised concerns that the policies being pushed by Fed Chairman Ben Bernanke could ultimately trigger higher inflation. They also worry that the Fed's programs could create bubbles in assets such as the price of stocks.

[Associated Press; By CHRISTOPHER S. RUGABER]

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