Consumer Prices Fall as Shoppers Hold Back

(AP)  Consumer prices have fallen more in the past year than in any 12-month period in nearly six decades - a huge break for shoppers but also a reminder that prices are being restrained by weak spending that's likely to slow an economic recovery.

The recession and lower energy costs kept a lid on prices for July, causing consumer inflation to fall to zero. Most economists think prices are now in a sweet spot: ultra-low inflation without a serious risk of deflation - a destabilizing spiral of falling prices and wages.

"Right now, there is no inflation out there," said David Wyss, chief economist at Standard & Poor's in New York. "The big issue is still a lack of economic growth."

Wall Street remained nervous Friday that recession-battered consumers could short-circuit any economic rebound after the Reuters/University of Michigan index of consumer sentiment posted a significant drop for the first part of August. It was a much weaker showing than expected.

The Dow Jones industrial average lost about 76 points, and broader stock indexes fell, too.

In Friday's report on consumer inflation, the Labor Department said prices were flat in July and have fallen 2.1 percent over the past 12 months - the steepest drop since a similar decline for the period ending in January 1950.

Core inflation, which excludes volatile energy and food prices, showed a small 0.1 percent rise in July and over the past 12 months has risen 1.5 percent - right in the Federal Reserve's comfort zone.

The 12-month decline reflects a 28.1 percent plunge in energy costs, which peaked at this time a year ago, when oil hit a record $147 per barrel and gas crested above $4 per gallon.

Since then, energy prices have tumbled. Other price pressures have disappeared, too, as the country has struggled to cope with waves of layoffs and the worst recession since World War II.

Gasoline prices, on a seasonally adjusted basis, fell 0.8 percent in July. The average price at the pump is currently $2.65 per gallon, up from $2.50 a month ago but well below the record high of $4.11 per gallon hit in July 2008.

Airfares rose 2.1 percent in July, while clothing costs jumped 0.6 percent - two rare examples of big price gains in the month.

The low prices could pinch America's retirees. Because inflation has hit zero, economists expect the country's 50 million Social Security recipients will get no annual cost-of-living increase in their benefit checks next January.

That would be a marked change from this year, when benefits rose 5.8 percent, the biggest jump in more than a quarter-century.

The cost-of-living gain is figured by comparing the Consumer Price Index for the July-September period of one year to the same period in the next year. Last year's cost-of-living adjustment reflected a big jump in energy costs.

"This year will be payback time," said Mark Zandi, chief economist at Moody's Economy.com.

The most recent increase, which amounted to an extra $63 a month for the typical retiree, helped bolster spending at the beginning of 2009, when the recession was most severe.

Some analysts said Congress might include a boost to Social Security in another stimulus package. But others said they doubted that would happen, given the huge budget deficits from the previous stimulus spending and efforts to bolster the financial system.

The Labor Department said prices were flat in July, after a 0.7 percent jump in June. Both months were heavily influenced by a swing in the cost of gasoline and other energy products. Energy prices sank 0.4 percent in July after a 7.4 percent spike in June.

Food costs fell 0.3 percent, the sixth straight month they have either dropped or been unchanged. Analysts said excess supplies have depressed prices for meat and a host of dairy products.

Big supermarket operators such as Supervalu Inc. and Safeway Inc. - which operates 1,739 stores in the West, Midwest, Mid-Atlantic and western Canada - have pressured packaged-food makers to cut prices. These retail chains have slashed their own prices, too, to lure cash-strapped consumers.

"If the item is not on sale in our stores, it is far more likely to remain on the shelf," Supervalu CEO Craig Herkert said last month on a conference call with investors. The company has about 2,400 retail grocery locations nationwide, operating Albertsons, Jewel-Osco and Save-A-Lot stores.

Wal-Mart Stores Inc. this week reported its first-ever drop in same-store sales for its overall U.S. business for the quarter. The world's largest retailer said a big factor was price deflation, primarily in grocery products like dairy.

The U.S. has not experienced a bout of deflation since the Great Depression of the 1930s. And many economists say the Fed has responded aggressively enough with interest-rate cuts to prevent a dangerous bout of falling prices.

Many economists say the recession will end sometime in the current July-September quarter. But they expect the initial recovery to be so weak that the jobless rate will keep rising, probably peaking above 10 percent next summer.

In a hopeful sign that the recession could be bottoming out, the Fed reported Friday that industrial production rose 0.5 percent in July. It was the first increase in nine months.

The gain reflected moves by General Motors and Chrysler to reopen many plants that had been closed in May and June while they were restructuring and emerging from bankruptcy protection.

U.S. industry operated at 68.5 percent of capacity in July, up from a record-low operating rate of 68.1 percent in June.

Right now, factories have plenty of excess capacity, job layoffs are tapering off but still continuing, and retail sales remain bleak. In part, that's why economists say more price cutting is likely in coming months.

[mysticorca]

Don't tell me gas prices are *down* 0.8% They've been doing nothing but rise over the past month. This article is a lot of double talk.

[grabandgo]

HERE IS A BIG PART OF THIS COUNTRY'S PROBLEMS

http://finance.yahoo.com/news/Blackstones-Schwarzman-tops-rb-61557240.html?x=0&.v=3

[grabandgo]

This countey is headed in the wrong direction because we have no direction.
The junior senator with 143 days experience and his band of thieves are destroying this economy for us and our children.
NEXT UP 50% + income tax!

[pepperwood2]

Consumer Prices Fall as Shoppers Hold Back.....Huge Break for Shoppers, but Reminder that Weak Spending Likely to Slow Economic Recovery.

It is simply amazing that Elite CBS & Obama administration are now blaming the American People because of the SLOW Economic Recovery. They just don't get it. I'll be glad to help if/when I can get a Stimulus Check.

There isn't a day that goes by that the American People aren't being conned & manipulated to spend, spend, spend run up our Personal Debt to make the Administration, Corporations, & The Cheats on Wall Street look good.

Energy, Food, Clothing, & Shelter prices are unreal. Gasoline has shot up here in rural Pa. to 2.70 gal. even though Oil closed down nearly 6 dollars a barrel in the last week. Food prices are another matter. All Summer your Food Stores have figured out how to sell you a smaller package for the same price you paid for a larger package of the same product, a couple of months ago. The Wall Street Corporate CEOs Help, with the Washington Elites Help have been working overtime to figure out ways to manipulate American Shopper to spend more for less.

The real message of this story is just what The People can do to control their fate. That is to hold back spending our hard earned income on all these gimmicks & frivolous schemes that these elite have prepared for us.

These Elite have got us into this mess and expect us to go along with them and pay these inflated prices. As a senior citizen, I've been WAITING for prices to drop that I can afford to pay. With the Blessings of our present administration, the Bailout Banks, Energy, Mortgage & Credit, Auto, Building, Etc, Frauds to artificially raise & inflate prices to make record profits on us. Sometimes the best buys are the ones we don't make. Maybe these Elite will finally hear us and The American People we'll get some respect. Thank you CBS! Now honestly, where are these consumer prices actually falling?

[sharonsj]

I live in rural PA too. I have seen the price of a gallon of half and half (usually $2 or more) drop to $1.75 in only one store in a larger town. My local grocery still charges $2.50. Food prices haven't really gone down; they have made the packages smaller instead. Occasionally there are loss leaders, like Wal-Mart selling brownie mix for $1 instead of $2.25. Gas is generally $2.65; supply and demand don't matter, it's all due to speculators. I have read that all forms of transportation are down--that's boats, trains, trucks, airplanes, etc.--yet gas keeps going up. There isn't much of a middle class left and, after giving trillions to the banksters, there will be no economic recovery for the rest of us.

[rotweil]

Wall Street remained nervous Friday that recession-battered consumers could short-circuit any economic rebound after the Reuters/University of Michigan index of consumer sentiment posted a significant drop for the first part of August. It was a much weaker showing than expected.....

Maybe I'm not understanding this but it appears to me from this statement the sentiment from wall street IMO is like they blame the consumer for not being able to afford rising cost while they bounce the market back and forth betting against us.

[hungry1968-16]

Very well said.

[hungry1968-16]

by the_majesty August 15, 2009 3:50 AM EDT
brian ... So you would like to drive more companies out of business and lose more jobs. How is that going to help ?






How is fear mongering going to help?

In fact, look what 8 years of fear mongering by Bush and his regime did to our nation.

[woeisme1]

I think the whole concept of capitalism needs to be looked at. I am a capitalist to be sure, but lets face it, American citizens are getting ripped off by American Corporations, continuously.

Something has changed in America the past several decades. Politicians have ruined America with their love affair with Corporate greed. The republican "trickle down" theory just has not, is not, and will not work anymore.

Anyone needing more proof of that is just blind and/or dumb. America is in trouble because America has lost the moral fiber, the ethical fortitude required to make a capitalist society work effectively for all the people.

Our social order has become a battle between the haves and the have nots. What a mess.

I wonder...whatever happened to "United We Stand; Divided We Fall"?

[desertpro]

DOUBLE HAPPINESS:
tO START MILK IN OUR AREA WAS 3+ AND YOU HAD TO BUY 2 TO GET A DICOUNT TO 219 OR SO... NOW NO NEED TO DOUBLE UP AND PRICE 1.99 A GALLON. BREAD DOWN FROM 1.49 FOR CHEAPIST BRAND DOWN TO .99 THESE ARE CENTRAL CALIFORNIA PRICES. I AM A RETIRED DISABLED VET AND DID ALL MY SHOPPING AT THE COMMISARY. NOW I MIX IT UP AS SOME OUTSIDE PRICES ARE COMPETIVE WITH THE ON BASE PRICES.

[bajajohn1]

All along merchandise of all types has been overpriced. Perhaps that is because the CEO's want those big bonuses. Time in to reign in the gougers of the American wallet.

[kcits]

The story compares the all time price of gasoline to what it is now in an attempt to show it isnt that bad. But it still is, demand is down supplies are up, but the price of gasoline has risen. That is a clear showing that the law of supply and demand is being ignored.
Amazingly it fell right after the feds said they were looking into it, as it always does, then it creeps back up when it looks like they are doing nothing, as usual. We are getting gouged still, and a boycott will not fix it. There are clear indications of price fixing, mainly in the futures market. Since this one commodity can have far reaching effects on our economy it is time the government stepped in and stopped the few from exploiting the many.

[bajajohn1]

Indeed, the fellows on Wall Street, the speculators, let us identify them.

[rotweil]

I agree 100% that they're attempting to show gas prices are not bad. Why didn't they include what the prices were two years ago or what the lowest price for gas was last year? When prices rose to over $3 a gallon last summer here in CA (as they are now) was when people started not being able to afford to go to work. Then the prices last year were risen to a level that the people couldn't sustain. So now they have the benchmark as how high they can take it without causing the same effect. They are now getting as much as they can when they drive up the prices of gas and still for no good reason. People need to use as little as they can now, or the prices will continue to rise even though the supply doesn't call for it.