Annual US inflation Down 1.5%, August Consumer Prices Higher on Energy Costs

U.S. consumer prices rose slightly in August but the key measure of inflation remained lower over the past 12 months, the government reported Wednesday morning.

Led by a 9.1% increase in gasoline prices, the Consumer Price Index rose 0.4% in August and followed no change in July, according to the Labor Department. The core CPI, which excludes volatile energy and food prices, increased 0.1% in August, the same level as July.

"For inflation to be a concern, we’d have to see core rates rising consistently above 0.2% each month and wages start to rise," PNC analyst Robert Dye was quoted on CNNMoney. "The labor markets are far from healed enough for that to happen."

The latest data also helps to ease concerns of rising inflation due to recent government spending and the Federal Reserve monetary policy of injecting cash into the US economy in a continuing effort to stimulate a recovery.

"What we’re seeing is a gradual disinflation that reflects the persistent slack in our economy," Richard DeKaser, chief economist at Woodley Park Research in Washington, who accurately forecast the monthly increase in overall prices, was quoted on Bloomberg. "This is providing the Fed with lots of patience in reversing monetary policy."

The latest data also reinforces comments from former Fed Chairman Alan Greenspan, who spoke Tuesday from Washington.

"We’ve got worldwide disinflation in train and it will continue for a short while," he said. "Our model says that by the early months of next year the rate of inflation will fall below 1 percent on an annual rate" before starting to climb.

The Labor Department data also shows that annual inflation has fallen 1.5%. That compares to the 2.1% decline in the 12 months ending in July, which also marked the sharpest annual drop since 1950.

Core annual inflation rose 1.4%, registering the smallest year-over-year gain since February 2004. The figure is well within the Federal Reserve’s traditional comfort 1%-2% range. The core annual rate climbed 1.5% in July.

Consumer price details

Rising August prices include:

  • Medical care rose 0.3% after a 0.2% increase in July
  • Energy prices climbed 4.6% after a 0.4% decline in July and a 7.4% increase in June
  • Gasoline prices soared 9.1% following a 0.8% decline
  • Housing prices, which accounts for about a third of the CPI index, rose 0.1% after July’s 0.2% increase
  • Lodging away from home prices rose 0.5% after falling 2.1% in July
  • Meats, poultry, fish and egg prices rose 0.4% following 1.3% decline in July
  • Used car and truck prices rose 1.9% following an unchanged reading in July after rising 0.9% in June and 1.0% in May.
  • Airfares climbed 1.7% following a 2.1% gain in July
  • Natural gas prices increased 0.4% after a 0.9% increase in July and a 1.3% gain in June
  • Public transportation prices jumped 1.3% after rising 0.2% in July

Declining August prices include:

  • Electricity costs declined 0.1% following a 0.6% decline in July
  • Prices for fruits and vegetables fell 0.7% following a 0.3% decline in July
  • Dairy and related products dropped 0.4%, its ninth consecutive decline
  • New vehicles prices declined 1.3% after a 0.5% increase in July, a 0.7% up tick in June, a 0.5% gain in May, and a 0.4 % increase in April
  • Clothing prices fell 0.1% after rising 0.6% in July

Rent costs were unchanged for the second straight month after an increase of 0.1% in June.

On Tuesday, the Labor Department released the Producer Price Index, which measures prices at the factory door and inflation pressures before they reach the consumer. The PPI showed a 1.7% rise in August, but discounting volatile food and energy prices, the core reading rose just 0.2%.

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