Stocks opened lower on Wednesday as policymakers cautioned that Europe’s debt crisis posed dangers to the global economy and on growing signs the contagion was beginning to spread to bigger European nations.
The Dow Jones Industrial Average fell 87.94 points, or 0.73 percent, to 12,008.22. The Standard & Poor’s 500 Index declined 10.04 points, or 0.80 percent, to 1,247.77. The Nasdaq Composite Index declined 23.33 points, or 0.83 percent, to 2,663.87.
On another note, consumer inflation may have peaked after surging in Spring of this year.
Americans paid less for gas, computers, and cars last month as overall prices declined for the first time since June. The trend could provide the Federal Reserve more leeway to lower long-term interest rates to help the economy without causing high inflation.
The Consumer Price Index fell 0.1 percent in October, the Labor Department stated Wednesday. A steep decline in gas prices led to the drop. Food prices did increase, but at the slowest pace this year.
Excluding the more volatile energy and food costs, so-called “core” prices increased 0.1 percent. The cost for renting an apartment increased, as did the prices for healthcare products and services.
However, new care prices dropped by the most in almost two year. Airline fares and hotel prices declined.
A little but of inflation can be healthy for an economy. It encourages consumers and businesses to spend and invest money sooner rather than later, before inflation erodes at its value.
Consumer prices have risen 3.5 percent in the 12 months ending in October. Core prices increased 2.1 percent in that stretch.
High unemployment, stagnant pay, and slower economic growth are likely to keep inflation under control. Without higher pay, consumers cannot afford big rises in prices.
Still, Fed policymakers will now likely feel less concerned that further steps to help boost the economy might trigger higher inflation.
“In the current soft economic environment, inflation is not an issue for policymakers,” said Jennifer Lee, an economist at BMO Capital Markets.
Federal Reserve policymakers are predicting lower inflation next year. That would give the central bank more latitude to hold down interest rates and potentially take other steps to help stimulate the economy. The Fed has kept the benchmark short-term rate it controls at almost zero for almost three-years. If there were signs that inflation was on the rise, the Fed would most likely increase rates.
The Central Bank stated two weeks ago that it expects inflation to decline from 2.8 percent this year to about 1.7 percent next year. That is in the Fed’s preferred range of about 1.7 percent to 2 percent.
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