U.S. Prices Post Biggest Drop in 17 Months

Tim Iacono

The Labor Department reported that consumer prices in the U.S. fell last month at their fastest pace since December of 2008, down 0.2 percent in May after a decline of 0.1 percent in April, driven lower by tumbling energy prices.

On a year-over-year basis, the overall consumer price index is now up just 2.0 percent and looks ready to go lower in the months ahead since the big annual energy price increases that have kept the price index elevated during the first half of the year are now all but over.

By category, it was the familiar story of volatile energy prices and steadily rising costs for medical care and education while categories such as housing, apparel, and entertainment continue to show declines from a year ago.

Energy prices were up 14.7 percent from a year ago based on the May data that included a 27 percent increase in the cost of gasoline, however, when the June data is reported next month, gasoline prices will be about even from the same time in 2009, meaning that a huge decline in the overall price index could be seen.

For example, a back-of-the-envelope calculation shows that substituting zero for the current annual energy price increase where it appears in the May data in both the housing and transportation categories would produce a change of 0.0 percent for the overall consumer price index.

Next month at this time, we’ll probably be talking about de-flation again…