The United States Labor Department released its monthly cost of living report this morning with the eyes of the Federal Reserve locked in on the closely monitored “core” rate. The print, otherwise known as the Consumer Price Index, came in slightly above expectations, showing consumer prices rising 0.4% in August from July. Wall Street economists were forecasting a 0.3% rise.
The highlight, though, was the so-called “core” rate, which excludes food and energy costs. This print was a very benign 0.1%. The lower “core” rate should help alleviate inflationary concerns for the Fed, which have been very outspoken about the threat of higher prices preventing an economic recovery.
“Underlying inflation remains dormant,” Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Mass., told Bloomberg News this morning. “This gives the Fed plenty of room to keep rates low for an extended period.”
The government report provides details as to the higher-than-expected rate of 0.4%, and makes mention about the spike in gasoline prices in August. Gasoline prices rose 9.1% in August after falling 0.8% in July. Even with the higher prices at the pump, the overall CPI rate actually dropped 1.5% year over year.
And, the drop may continue. According to Bloomberg, gasoline prices for September are in line with August figures. Regular pump prices averaged $2.58 a gallon in the first 15 days of the month, compared with an average of $2.62 in August. Bloomberg also added that food prices, which account for about a seventh of the CPI, increased 0.1% in August, the smallest gain since January.
“Most of us have never seen a selling environment like now,” Chief Executive Officer David Dillon said on a conference call, adding that prices will continue to decline over the next several quarters. “It will be like this a while longer.”
Knowing that a dramatic increase in consumer prices will force the hand of the Fed to begin raising rates, policy makers have remained committed to keeping the key interest rate between zero and 0.25 “for an extended period” to promote economic recovery. When the group met on Aug. 12, they said they expected “inflation will remain subdued for some time.” The central bankers meet again next week, Sept. 22-23.
The common feeling is inflation will remain contained for a prolonged period of time, thus keeping rates at historic lows. Former Fed Chairman Alan Greenspan, speaking Tuesday at an investor conference sponsored by Deutsche Bank Securities Inc., said inflation will continue to cool until next year.
“We’ve got worldwide disinflation in train and it will continue for a short while,” Greenspan 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.
Other Articles Related To This Topic:
