U.S. Inflation Fell for First Time in Almost Two Years

The cost of living in the U.S. fell in August for the first time in almost two years as falling fuel costs and a slowing economy cooled inflation.

The consumer price index fell 0.1 percent, the first decrease since October 2006, after jumping 0.8 percent the prior month, the Labor Department said today in Washington. So-called core prices, which exclude food and energy, climbed 0.2 percent, as forecast, after a 0.3 percent gain.

The diminishing threat of inflation makes it easier for Federal Reserve policy makers today to lower interest rates to mitigate the damage from the collapse in credit that brought down Lehman Bothers Holdings Inc. Companies such as General Motors Corp. and J.C. Penney Co. are offering discounts to revive sales.

Prices increased 5.4 percent in the 12 months to August, after a year-over-year gain of 5.6 percent in July that was the biggest since January 1991.

The core rate climbed 2.5 percent from August 2007, less than anticipated, after a 2.5 percent year-over-year increase the prior month.

Energy expenses dropped 3.1 percent, after a 4 percent gain in the prior month, led by the biggest slump in fuel oil since April 2003. Gasoline prices decreased 4.2 percent.

The consumer price index is the government's broadest gauge of costs because it includes goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

Food prices, which account for about a fifth of the CPI, increased 0.6 percent after a 0.9 percent gain in July. New-vehicle prices dropped 0.6 percent, the most since November 2006 and hotel fares dropped 1.1 percent. The price of airfares and clothing increased.

Rents which, make up almost 40 percent of the core CPI, rose at the same pace as in July. A category designed to track rental prices climbed 0.1 percent for a second month.

Today's figures also showed how lower prices helped American workers last month. Wages increased 0.6 percent after adjusting for inflation, following a decrease of 0.8 percent in July.

U.S. Inflation Fell for First Time in Almost Two Years

TradingEconomics.com, Bloomberg.com
9/16/2008 5:46:00 AM