U.S. CPI falls 0.2% in August, first drop in nearly 1-1/2 years
(Reuters) – U.S. consumer prices fell for the first time in nearly 1-1/2 years in August and underlying inflation pressures were muted, which could lessen the urgency for the Federal Reserve to raise interest rates.
The Labor Department said on Wednesday its Consumer Price Index dropped 0.2 percent last month as a broad decline in energy prices offset increases in food and shelter costs.
It was the first decrease since April last year and followed a modest 0.1 percent gain in July. Economists had expected consumer prices would be flat in August.
“There is still enough slack in the economy to keep a tight lid on price increases, which should support the view of those within the Fed arguing in favor of patience before the first rate hike,” said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.
The U.S. central bank wraps up a two-day meeting on Wednesday and some investors and economists think it could use its policy statement at 2 p.m. EDT to begin to lay the groundwork for an eventual rate hike.
Concerns at the Fed that inflation was running too low had abated in recent months, but the CPI data suggested a quickening of inflation during the spring may have run its course.
The CPI increased 1.7 percent in the 12 months through August, the smallest advance in five months, while a core index that strips out food and energy prices was up by the same amount, marking a slowdown from July’s 1.9 percent gain.
Month-on-month, the core index was unchanged for the first time since October 2010.
The Fed targets 2 percent inflation and tracks an index that is running even lower than the CPI.
Many economists think the central bank could raise interest rates as soon as next June, while interest rate futures point to July for the first rate hike. It has kept benchmark overnight lending rates near zero since December 2008.
