Consumer prices take an unexpected dip

WASHINGTON (AP) — Consumer prices dipped unexpectedly in March, leaving prices over the past year falling at the fastest clip in more than a half-century. The recession is expected to keep a lid on inflation as widespread layoffs dampen wage pressures and weak demand keeps companies from raising prices.

The Labor Department said Wednesday that consumer prices edged down 0.1 percent last month as a drop in energy prices offset the biggest rise in tobacco prices in more than a decade. It was a better performance than the 0.1 percent rise in the Consumer Price Index that economists had expected.

Over the past 12 months, consumer prices have fallen 0.4 percent, the first 12-month decline since a similar drop for the year ending in August 1955.

The Fed also reported that production at the nation’s factories, mines and utilities dropped a seasonally adjusted 1.5 percent in March, the fifth-straight monthly decline. That matched February’s drop and was worse than the 1 percent dip analysts expected.

Factories and mines are increasingly idle, as the total industrial capacity utilization rate fell to 69.3 percent from 70.3 percent, the lowest on records dating to 1967, the Fed said.

Core inflation, which excludes energy and food, rose 0.2 percent last month, matching the gains of the past three months. It was slightly higher than the 0.1 percent rise economists expected.

Over the past 12 months, core inflation has risen 1.8 percent. While some economists have expressed fears the recession could spawn a destabilizing period of falling prices, other analysts point to the rise in core inflation as evidence that deflation remains only a distant threat.

In fact, some economists worry that all of the moves the Federal Reserve has made to fight the recession and the worst financial crisis in 70 years could be sowing the seeds for inflation troubles down the road.

In a speech Tuesday, Federal Reserve Chairman Ben Bernanke repeated assurances that the central bank is always mindful of the threats of inflation and is prepared to remove the monetary stimulus it has provided once the economy shows signs of stabilizing.