WASHINGTON – Sharp drops in fuel and food costs reduced a measure of U.S. wholesale prices in April by the most in three years. But outside those volatile categories, inflation stayed tame.
The producer price index, which measures price changes before they reach the consumer, fell a seasonally adjusted 0.7 percent in April from March, the Labor Department said Wednesday. It was the second straight monthly decline and the largest since February 2010.
The index declined largely because gas prices dropped 6 percent and the price of home heating oil fell by the most in almost four years. Food prices also declined 0.8 percent.
Overall wholesale prices have increased just 0.6 percent over the past 12 months. That’s the smallest yearly gain since July.
Excluding the volatile food and energy categories, core prices ticked up 0.1 percent in April from March. And core prices have risen only 1.7 percent in the past 12 months.
Aside from sharp swings in gas prices, consumer and wholesale inflation has increased slowly in the past year. The combination of modest economic growth and high unemployment has kept wages from rising quickly. That’s made it harder for retailers and other firms to raise prices.
Mild inflation gives the Federal Reserve more latitude to continue with its aggressive policies to spur greater economic growth. The Fed has said plans to keep the short-term interest rate it controls at a record low near zero until the unemployment rate falls below 6.5 percent, provided inflation remains in check. Unemployment in April dropped to a four-year low of 7.5 percent.
The Fed is also purchasing $85 billion a month in bonds to keep longer-term interest rates down. That’s intended to encourage more borrowing and spending, which drives economic growth. The Fed says it will continue to buy bonds until the job market improves substantially.
Many economists expect the Fed will taper those purchases by the end of the year, particularly if hiring stays healthy. But too-low inflation could cause them to continue.
Price increases at about 2 percent can be good for the economy. They encourage consumers and businesses to spend more before prices rise.