U.S. Consumer Prices Fall 0.1% in August; Core Rate Rises 0.2%
By Bob Willis
Sept. 19 (Bloomberg) -- Consumer prices in the U.S. unexpectedly fell in August for the first time this year, as Americans paid less for gasoline and housing costs moderated.
The decrease followed a 0.1 percent advance in July, the Labor Department said today in Washington. Core prices, which exclude food and energy, climbed 0.2 percent as forecast and were up 2.1 percent from a year earlier.
Slowing growth and weaker consumer spending, driven by the deepest housing recession in 16 years, are keeping companies from increasing prices. Today's figures may ease concern at the Federal Reserve, which yesterday cut its key rate for the first time in four years, that inflation remains a risk to the economy.
``Inflation has been relatively stable for the last few months,'' Zach Pandl, an economist at Lehman Brothers Holdings Inc. in New York, said before the report. ``With downside risks to growth having increased, the Fed's focus will be on risks to growth.''
Economists had forecast no change in consumer prices, according to the median of 79 projections in a Bloomberg News survey. Estimates ranged from a decline of 0.3 percent to a 0.3 percent gain. The median estimate for core inflation was for a 0.2 percent increase.
12-Month Increase
Consumers paid 2 percent more for goods and services in August compared with the same time last year, less than the 12- month increase of 2.4 percent reported in July.
Today's report showed energy prices fell 3.2 percent, the biggest decline since October, after dropping 1 percent in July. Gasoline prices fell 4.9 percent.
Food prices, which account for about a fifth of the CPI, rose 0.4 percent after a 0.3 percent increase in July.
Housing costs, which include some energy costs and account for two-fifths of the total consumer price index, were unchanged after rising 0.2 percent. Owner's equivalent rent, which makes up 30 percent of the core CPI, increased 0.2 percent for a third straight month.
Medical-care costs rose 0.5 percent after increasing 0.6 percent. Clothing prices fell 0.5 percent following a 0.4 percent gain. Auto prices rose 0.1 percent.
Consumer Spending
The housing slump and higher gasoline prices since the start of the year have slowed consumer spending, which accounts for more than 70 percent of the economy.
Almost 60 percent of the CPI covers prices that consumers pay for services ranging from airline fares to movie tickets and laundry charges.
The Fed's preferred inflation gauge, a core measure tied to consumer spending compiled by the Commerce Department, was up 1.9 percent in July from a year earlier.
Some Fed policy makers, including Ben S. Bernanke before he became chairman, have said they would prefer that rate to be in a 1 percent to 2 percent range.
The Fed yesterday, in announcing it was cutting its target interest rate to 4.75 percent from 5.25 percent, said the move was ``intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets.''
The Fed said ``readings on core inflation have improved modestly this year,'' though ``some inflation risks remain.''
Auto Prices
Some auto and electronics-makers have been cutting prices or boosting incentives to retain or expand market share.
Carmaker Chrysler LLC will offer six-year, no-interest loans and cash rebates on some of its 2007 models through Oct. 1 to boost U.S. sales of its cars and trucks, spokeswoman Lori Pinter said Sept. 5. The new incentives are in addition to five-year, no- interest loans Auburn Hills, Michigan-based Chrysler now offers on some vehicles.
Ford Motor Co. began offering rebates of as much as $1,000 in addition to existing incentives on most 2007 and 2008 models Sept. 4. Ford's offer also runs through Oct. 1.
Computer maker Apple Inc. on Sept. 5 cut the price of its iPhone by $200 to $399, saying it wanted to make the product available to more households. A day later, Chief Executive Officer Steve Jobs offered a $100 rebate to those who paid full price and apologized to customers.
``We want to make it affordable for even more customers as we enter this holiday season,'' said Jobs.
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