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By Jason Stipp and Robert Johnson, CFA | 04-17-2013 12:00 PM

Lower Prices: Bad Thing or Good Thing?

Although stable prices and tame inflation free up more dollars for consumers to spend, they also broadly underscore the economy's current speed bumps.

Jason Stipp: I'm Jason Stipp for Morningstar. CPI data for the month of March showed prices drop 0.2%. So how should we read falling prices? Good news or bad news for the economy and the consumer? Here to offer his insights is Morningstar's Bob Johnson, our director of economic analysis.

Thanks for joining me Bob.

Bob Johnson: Great to be here.

Stipp: We did see prices come down in March. Last week we talked a little bit more broadly about inflation and what the expectations were. You said that inflation pressures were pretty much under control right now. This report would seem to bear that out.

Johnson: Absolutely. The headline numbers showed that the CPI was down in the month March, a couple of tenths of a percent, driven primarily by gasoline, but there were a number of other energy-related categories that were also down, as well as apparel was down 1%, as well. So, it was a nice report. There were some increasing price items too. But again it was a nice balance and I think inflation remains under control. That was the message.

Stipp: A key one; food prices were pretty stable in the month of March, and I know that's one that you've been watching pretty closely over the last year.

Johnson: Yes. I always mentioned gasoline is the one that I look at as a critical one when I walk in in the morning. That continues to move on a downward path which is great news. Now, we've got kind of food prices kicking in.

We had three bad months at the end of 2012 because of the drought. It wasn't as bad as it could have been because certain things went up one month and other things in other months. So, we never had [prices for] livestock and grains and fresh fruit all going up at the same time. So, we got a really nice balance, so it didn't really kill us at any point last year.

Now, we've had a lot of the agricultural commodities come in, in terms of price. We've had some reports on crops, and certainly the inventories were a little bit higher than we thought in several categories. Corn, wheat, and a lot of the starches are down. A lot at ag commodities are down, and that is really good news, because it helps food prices here in the U.S. which is a substantial portion of especially low earners' income. So this gives them more money to spend elsewhere in the economy.

And the low prices are even more beneficial to people overseas, especially in emerging markets, where food is a huge portion, maybe 30%, 40%, 50% of their incomes. One of the reasons a lot of people in Asia had cracked down on their economies a year or two ago was because of food inflation. Now, we've kind of come back down in terms of food inflation, and that is absolutely great news.

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