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No Sign of Inflation in March

Food and fuel costs register big, surprising drops

By Mark Huffman
ConsumerAffairs.com

April 15, 2009

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Consumers found lower prices almost everywhere last month as the government reports the Consumer Price Index actually decline last month by 0.1 percent. In the last 12 months, U.S. consumer prices have fallen 0.4 percent, providing some small help to consumers trying to weather the recession.

The two sectors giving consumers the most heartburn last year — food and fuel — are providing the most relief this year. The Labor Department figures show falling costs of gasoline, fuel oil and diesel led energy prices lower, with the sector dropping by three percent in March.

Grocery bills were also lower, led by price declines in dairy and meat products. The cost of an airline ticket, a hotel room and a new suit also fell last month, reflecting the drop in demand caused by the economic downturn.

New car prices, however, were up slightly as dealers found they didn't have to discount quite a steeply last month in order to make the sale. New vehicle prices were up 0.6 percent.

The biggest increase in prices, however, was for tobacco products, which were up 11 percent, according to the Labor Department.

While falling prices are short term good news for consumers, government policy makers and economists worry that it could give way to runaway deflation. When prices decline significantly over a period of time, as they did in the U.S. during the Great Depression, it makes existing debt a crushing burden, since old debts must be repaid with ever-more valuable dollars. At some point incomes are reduced, making it even harder to keep up.

While deflation is a very real threat, the Federal Reserve believes that its massive infusion of cash into the economy over the last few months will prevent that from happening. In fact, some economists worry that all that printing of money will eventually lead to inflation.

It might, but there was no sign of it in March.

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