Consumer Prices Drop in August Triggered by Declining Cost of Gasoline
Prices paid by American households declined in August as cheaper gasoline helped keep inflation below the objective of Federal Reserve policymakers.
The consumer price index fell 0.1%, the first decrease since January, after a 0.1% gain in July, Labor Department figures showed Sept. 16.
The so-called core measure, which strips out often-volatile fuel and food costs, rose 0.1% for a second month. Goods prices declined, while services barely rose.
A 15% plunge in energy costs over the past 12 months and a rising dollar are acting as a brake on inflation that the Fed views as temporary. Central bankers, who conclude a two-day meeting Sept. 16, will have to weigh restrained prices, uneasy financial markets and a resilient U.S. labor market as they consider raising interest rates.
“Inflation is still relatively muted,” said Gregory Daco, head of U.S. macroeconomics at Oxford Economics USA in New York, who correctly projected the drop in the CPI. “We continue to see pass-through from a strong dollar and low energy costs.”
The drop in the the CPI matched the Bloomberg News survey median. Estimates ranged from a decline of 0.2% to a gain of 0.3%.
The decline in the cost of living allowed Americans’ paychecks to stretch further. Hourly earnings adjusted for inflation rose 2% in August from a year earlier, a separate report from the Labor Department showed. Compared with the prior month, real earnings advanced 0.5%, the most since January.
The consumer price gauge increased 0.2% in the 12 months ended in August, the same as in July.
The core CPI measure, which excludes volatile food and fuel costs, rose 1.8% from August 2014, matching the prior month’s year-over-year gain.
The median projection in the Bloomberg survey called for the core gauge to rise 0.1% from July and 1.9% from the same month last year.
Energy costs decreased 2% from a month earlier, the biggest decline since January. Gasoline prices slumped 4.1%, the most in seven months. Fuel oil also was cheaper.
The nationwide average cost of a gallon of regular gasoline was $2.31 as of Sept. 15, down from this year’s peak of $2.80 in the middle of June, according to AAA, the biggest U.S. motoring group.
Food prices climbed 0.2% for a second month. Inflation was held back in August by a fourth straight decline in the cost of used motor vehicles and a 3.1% decrease in air fares, while shelter costs cooled.
Medical care costs were stagnant. These readings often vary from results for this category within the Fed’s preferred measure of inflation — the core PCE deflator that’s tied to consumption. Economists attribute the discrepancy to different methodologies.
The Fed’s preferred gauge of inflation, linked to consumer spending, hasn’t been above the central bank’s 2% goal since March 2012. It climbed by 0.3% in July from a year earlier. The Commerce Department will release the August figure Sept. 28.
Fed policymakers have said they expect inflation to return to their target as the drag from lower oil costs and the rising dollar diminishes.
Futures contracts show the odds of an increase this month have dropped to 32% from 48% a month ago, according to data compiled by Bloomberg.
The CPI is the broadest of three price gauges from the Labor Department because it includes goods and services. About 60% of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.
Wholesale prices were little changed in August, while the import cost gauge fell 1.8% from a month earlier, the biggest drop since January.
