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May, 1987, Vol. 110, No. 5
Sharp drop in energy prices holds
inflation in check during 1986
Inflation seemed to vanish in 1986. A slight increase in consumer prices was a contrast to the economy of the 1970s, when double-digit price increases appeared. Furthermore, producer prices actually fell across a broad front for the first time since the early 1960s.
The continuing decline in energy prices resulted in the Consumer Price Index (CPI) advancing only 1.1 percent during the 12-month period ended in December. This rise compares with increases of about 4 percent in each of the 4 preceding years and was the smallest annual change since a 0.7-percent rise in 1961.
Falling energy prices had an even larger impact on the Producer Price Index (PPI). The finished goods price index turned lower for the first time since 1963, declining 2.5 percent; it had risen less than 2 percent in each of the 3 preceding years. The intermediate goods price index fell 4.4 percent over the year after rising slowly from 1982 through 1984 and edging down slightly in 1985. The 1986 decreases for both these major stage-of-processing indexes were the largest annual declines since 1949. The drop of 9.7 percent in the crude goods price index was considerably more than the declines recorded in 1984 and 1985 and marked the largest decrease since 1952.
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