Consumer prices drop 0.2 pct on cheaper gas

More evidence that inflation remains in check

By Christopher S. Rugaber
AP Economics Writer

WASHINGTON (AP) — U.S. consumer prices declined last month as the cost of gas fell sharply and food prices were unchanged. The tame reading is the latest evidence that the sluggish economy is keeping inflation in check.

The consumer price index declined a seasonally adjusted 0.2 percent in March, after jumping 0.7 percent in February, the Labor Department said Tuesday. Gas prices fell 4.4 percent, reversing part of February’s 9.1 percent gain.

Except for February’s large increase, consumer prices have declined or been unchanged in four of the past five months. In the past year, consumer prices have risen 1.5 percent. That’s the smallest yearly increase in the past eight months.

Excluding the volatile food and energy categories, core prices rose 0.1 percent. In the 12 months ending in March, they rose 1.9 percent.

That gives the Federal Reserve the leeway to continue its extraordinary efforts to stimulate the economy.

In February, consumer prices jumped by the most in more than three years, mostly because of a big increase in energy costs. Gas prices rose by the largest amount in more than 3  years.

Since then, gas has gotten cheaper. Wholesale gas prices plunged 6.8 percent in March, pushing down a measure of wholesale prices 0.6 percent, the biggest decline in 10 months.

Gas prices averaged $3.53 nationwide on Monday, according to AAA. That’s 16 cents lower than a month ago.

Mild inflation gives the Fed the room to keep pursing policies to spur faster economic growth. The Fed is keeping a key short-term interest rate it controls at nearly zero at least until unemployment falls below 6.5 percent.

It is also buying about $85 billion in Treasury securities and mortgage-backed bonds in an effort to keep longer-term interest rates low and spur more borrowing and spending by consumers.