Slightly higher-priced gasoline pushed up consumer prices in March, which is good news for the U.S. economy since inflation starts to settle at healthier levels.
The consumer price index, which does not include the price of food and gas, rose 0.2 percent in March, according to a Labor Department’s report released Friday. Inflation also rose 0.2 percent two months ago when a three-month decline was finally put to an end. Economists explained that the decline, which was mainly caused by low gas and oil prices, was toxic for economy as deflation loomed.
In those three months, inflation hit levels that weren’t considered healthy to an economy, consumer sentiment and demand stalled, while a strong currency led to additional problems such as a wider trade deficit.
Economists currently hope that the hike in gas prices announces a raising trend that will eventually lead to a 2 percent rate of inflation as the Federal Reserve hopes. Also, it signals that consumer prices are no longer at risk of being engulfed by deflation, according to Paul Ashworth, chief financial adviser for Capital Economics.
Retail gasoline prices rose 3.9 percent last month, which led to a little but salutary inflation. Nevertheless, gas is still very cheap because it sank more than 33 percent since last year to an average price of $2.40 per gallon, the Daily Fuel Gauge recently reported.
But less expensive gas triggered a sharp decrease in consumer prices in the past year, which meant that more and more Americans chose to save the savings they made from cheaper fuel rather than going on a shopping spree as analysts hoped.
Economists claim that core prices (food and gas excluded) rose 0.2 last month. This means that clothes, cars, medical care, housing, and the general cost of living in the U.S. also increased. But the cost of food and airfare was usually stable or even decreased.
According to official data, core prices in the U.S. rose 1.8 percent in the past 12 months.
But gasoline prices and several other factors show that inflation will remain sluggish from now on. A stronger currency decreased the prices of imported goods such as electronics and clothing but discouraged exports.
The U.S. dollar continues to rise against the euro and other currencies since the U.S. economy had a stronger growth than Europe and other parts of the world did, but also because the Federal Reserve started its money printing press.
Furthermore, although unemployment hit historic lows, low hourly wages didn’t help Americans regain optimism about their future and boost consumer demand to that point that retailers would start raise prices. Wages only rose 2 percent in the last year, but a series of street protests currently fight for $15 percent hourly wage nationwide.
Economists project that inflation will start an ascending trend later this year, if gasoline prices remain stable. The Fed dreams about a 2 percent level of inflation because it is the safest level at which the economy is shielded against deflation, consumers are encouraged to spend more, while prices can remain relatively stable.
Low inflation also prevented the Fed from raising its benchmark interest rate from a historic low which is close to zero. Although 3.1 million new jobs were created in the last year, and the U.S. economy experienced a notable growth, the Fed can only hike its key interest rate if inflation hits 2 percent. Below that level, it would be too risky for the economy.
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