Falling Gasoline Prices Slowed Inflation Rate

Consumers experienced some relief in gasoline prices last May as declining prices weakened the total inflation for the month.

The Consumer Price Index (CPI), the government’s primary measure of inflation, showed a drop in consumer prices by 0.3% last month. That is the deepest drop in a month since December of 2008.

Falling current gas prices contributed greatly to this outcome, with a decline of 6.8%. A separate piece of data from the Oil Price Information Service showed that the national average of gasoline prices at the start of May was $3.81 per gallon. That dropped to $3.62 a gallon at the close of that month.

Lower gasoline prices are a positive sign for the public, oftentimes acting as a minor economic stimulus, since consumers have extra money to afford other goods. However, fluctuations in gasoline prices usually take several months to reflect on the costs of other commodities and impact the behavior of consumers.

As an example, prices of food in the month of May remained unchanged.

In the meantime, another recently released report showed that retail sales dropped in May mostly due to the decline in the spending of consumers on gasoline. Without accounting for gasoline, vehicle and food, retail sales remained low for the second consecutive month.

Despite discouraging trends relating to retail sales, several economists anticipate it to be temporary. Lower current gas prices can increase spending in the latter parts of the summer according to Ian Shepherdson, chief economist for High Frequency Economics of the United States.

Without counting food and gas, the month to month core inflation increased by 0.2%.

Over the past year, the inflation rate in the U.S. is 1.7%. Year over year core inflation is higher by 2.3%, which is a little higher than the 2% target rate of the Federal Reserve.

The Consumer Price Index measures changes in prices of a wide range of products such as food, housing, energy, apparel, medical expenses and cars.

By: Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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