WASHINGTON — Inflation has essentially disappeared, and that gives the Federal Reserve more room to keep interest rates at record lows.
Consumer prices fell in April for the first time in more than a year. The figures released Wednesday were welcome news for people who qualify for loans and want to take on more debt. But low rates hurt savers, especially those on fixed incomes.
The Fed now appears more likely to keep rates at record-low levels well into next year, economists say. Some had thought it would start increasing rates at the end of this year.
Paul Ashworth, senior U.S. economist at Capital Economics, said he thinks the Fed won’t start raising rates until late next year — and possibly not until 2012.
Declining gas prices pulled overall prices down 0.1 percent last month. Gas prices are predicted to sink lower still this summer.
Core inflation, which excludes volatile food and energy prices, was flat in April. Over the past 12 months, it has risen 0.9 percent — the smallest increase in 44 years.
The weakness of the economy has kept inflation so low that some economists are beginning to worry about the possibility of deflation — a destabilizing period of falling prices and wages.
Normally, if interest rates are kept too low for too long, it raises fears of inflation. But not now, with inflation having disappeared. Those low rates could provide some protection to the U.S. economy if the European debt crisis were to spread globally.
