Tags: US | Consumer | Prices

Flat Consumer Prices Show Inflation Remains in Check

Thursday, 18 Mar 2010 08:36 AM

 

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Consumer prices were flat last month, as the weak economy limits the ability of companies to charge more for goods and services.

The Labor Department's report Thursday indicates there is little sign of inflation, which enables the Federal Reserve to keep the short-term interest rate it controls at a record low in an effort to revive the economy.

A rise in food prices last month was offset by a drop in gasoline and other energy costs.

Excluding volatile food and energy prices, the core Consumer Price Index rose by 0.1 percent in February, the Labor Department said. That matched analysts' estimates. Higher prices for used cars and medical services pushed up the core figure.

Medical care costs rose by 0.5 percent for the second straight month in February, the department said.

Used car prices increased by 0.7 percent, the seventh straight gain. Many analysts attribute the rise to last summer's popular "Cash for Clunkers" program, which took many used vehicles out of circulation.

The housing slump, meanwhile, is keeping prices low. Rents and other housing costs were flat in February, after falling 0.5 percent the previous month. Housing costs, including heating and furnishing, makes up more than 40 percent of the CPI.

The "figures show there is next to no inflationary pressure in the U.S. economy," Paul Dales, U.S. economist at Capital Economics, wrote in a note to clients.

Consumer prices rose 2.1 percent in February compared to the previous year, down from January's 2.6 percent pace. The core index rose 1.3 percent in the past year, down from 1.6 percent in January.

Economists expect the weak recovery to keep inflation in check for the rest of the year. Factories are running well below normal levels of production and unemployment is at 9.7 percent. That spare capacity means companies can ramp up production without having to increase wages or other costs.

At the same time, high unemployment and stagnant incomes are restraining consumers' ability to spend, which makes it harder for companies to raise prices.

The Federal Reserve said Tuesday it would maintain its key interest rate at a record low near zero for "an extended period." Most economists interpret that to mean at least six more months.

Fed policymakers also said that "inflation is likely to be subdued for some time."

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