Inflation Rates Low Again During 2002

An abundance of bargains last year was one of the reasons that U.S. consumers felt comfortable about spending most of their household income on goods and services again, rather than putting much of it away in "rainy day" savings.

The most widely followed measure of inflation across the U.S. economy—the Labor Department's Consumer Price Index (CPI)—increased by a scant 0.1% during the final two months of 2002. Over the 12 months ended last December, the CPI rose by a cumulative 2.4%. Long gone are the days of double-digit annual inflation. As a result, American consumers have become emboldened by their feelings of leverage with retailers.

Most of the impetus for what little inflation there is these days comes from the services side of the consumer ledger—that part of the economy less affected by the price-dampening effects of global competition. The sub-index covering services increased by 3.2% last year, while inflation in consumer goods prices (actual physical products like cars, food, and books) was only 1.2%. Medical care services cost consumers an average of 5.0% more in 2002 than in 2001, but average prices for recreational goods (including books, magazines, DVDs, etc.) cost an average of only 1.1% more in December 2002 versus December 2001.