Economists who are generally surprised by everything were surprised again today when the CPI Fell .1% in the April CPI Release.

Bloomberg reports Consumer Prices Unexpectedly Decreased in April.

The cost of living in the U.S. unexpectedly dropped in April for the first time in more than a year, reinforcing forecasts that the Federal Reserve will keep interest rates near zero for much of 2010.

The 0.1 percent fall in the consumer price index was the first decrease since March 2009, figures from the Labor Department showed today in Washington. Excluding food and fuel, the so-called core rate was unchanged, capping the smallest 12- month gain in four decades.

Retailers such as Wal-Mart Stores Inc. are cutting prices to bolster sales as customers face almost 10 percent unemployment and rising foreclosures. The European debt crisis, which has pushed up the value of the dollar and may restrain global growth, will probably further depress prices at a time when inflation is already running below Fed policy makers’ projections.

Consumer prices were forecast to rise 0.1 percent, according to the median forecast of 79 economists in a Bloomberg News survey. Estimates ranged from a drop of 0.2 percent to a gain of 0.4 percent. Costs excluding food and energy were projected to rise 0.1 percent.

BLS April 2010 CPI Release

Let’s now turn our focus to the April 2010 Consumer Price Index Release.

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the index increased 2.2 percent before seasonal adjustment.

The index for energy decreased 1.4 percent in April and accounted for the seasonally adjusted decline in the all items index. The indexes for gasoline and natural gas both decreased significantly, outweighing increases in the indexes for fuel oil and electricity.

The food index increased 0.2 percent in April, while the index for all items less food and energy was unchanged. The index for meats, poultry, fish, and eggs rose sharply in April and accounted for the food increase; other grocery store food groups were mixed and the index for food away from home rose slightly. Within all items less food and energy, the indexes for recreation, airline fares, and medical care all rose in April. Offsetting these increases were declines in the indexes for apparel and for household furnishings and operations.

The continuing stability of the index for all items less food and energy has resulted in an increase over the last 12 months of 0.9 percent, the smallest 12-month increase since January 1966.

CPI-U April 2009 Through April 2010

click on chart for sharper image

Unleaded Gas Futures Daily Chart

That is quite a drop, not reflected in the April CPI.

Unleaded Gas Futures Weekly Chart

Month over month comparisons will be easy enough to beat if prices keep dropping as I expect. Year over year prices will be easy to beat starting in June.

Gasoline prices often peak in May, around Memorial Day. That does not look likely this year.

Given that April food prices were higher because of frosts, I expect vegetable prices to drop as well.

With rent prices still dropping, we can see easily see several consecutive months of negative CPI.

Mike “Mish” Shedlock
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