Consumer prices unexpectedly showed a modest decrease in the month of March, according to a report released by Labor Department on Wednesday, with the drop in prices largely due to a notable decline in energy prices.

The Labor Department said its consumer price index edged down 0.1 percent in March following a 0.4 percent increase in February. The modest decrease came as a somewhat of a surprise to economists, who had expected prices to edge up 0.1 percent.

With the modest monthly decrease, consumer prices were down 0.4 percent compared to the same month a year ago, marking the first year-over-year decrease in consumer prices since August of 1955.

A steep drop in energy prices contributed to the unexpected monthly decrease in consumer prices, with energy prices falling by 3.0 percent in March after rising 3.3 percent in February.

The indexes for fuel oil and natural gas extended the downward move seen since last summer, with the fuel oil index falling 8.5 percent and the index for natural gas decreasing 4.8 percent.

With the gasoline index falling 4.0 percent in March after rising 8.3 percent in February, transportation costs also showed a notable 1.1 percent decline following a 1.9 percent increase in the previous month.

The report also showed that food prices edged down 0.1 percent for the second consecutive month. A 0.4 percent drop in the food at home index more than offset 0.1 percent increases in the indexes for food away from home and for alcoholic beverages.

Excluding food and energy prices, the core consumer price index rose 0.2 percent for the third consecutive month. Economists had been expecting a 0.1 percent increase in core prices.

The continued monthly increases in core consumer prices contributed to a 1.8 percent annual rate of growth.

Peter Boockvar, equity strategist at Miller Tabak, said, The media will highlight the headline drop and talk about deflation, but the recent rise in the CRB index and with core prices remaining sticky, should be a message that deflation is not in the cards.

Also the rise in the money supply data over the past few months, notwithstanding the recent drop, will also keep deflation well at bay, Boockvar added.

The Labor Department released a separate report on Tuesday showing that its producer price index fell 1.2 percent in March following a 0.1 percent increase in February. The steep drop in prices came as surprise to economists, who had expected the index to come in unchanged.

A significant 5.5 percent decrease in energy prices contributed to the unexpected decrease in producer prices, with food prices showing a more modest 0.7 percent drop.

Excluding food and energy prices, the core producer price index was unchanged in March compared to a 0.2 percent increase in the previous month. Economists had been expecting core prices to edge up by 0.1 percent.

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