The FINANCIAL — Consumer prices fell in August due largely to depressed oil markets, marking the first drop since January and complicating the Federal Reserve’s debate over when to raise interest rates, according to Nasdaq.
The consumer-price index, measuring what Americans pay for everything from groceries to medication, declined 0.1% from July, the Labor Department said on September 16. Prices increased in each of the prior six months.
Excluding volatile food and energy components, so-called core prices rose 0.1%.
Economists surveyed by The Wall Street Journal expected no change in overall prices and a 0.1% increase in core prices.
The broader picture shows inflation remains historically weak more than six years after the U.S. emerged from recession. From a year earlier, consumer prices rose just 0.2% in August while core prices grew 1.8%.
Depressed oil prices—tied to a glut in supplies and weak demand—have weighed on overall inflation over the past year. Meanwhile, an economic slowdown in Asia and weakness in Europe are weighing on prices for other goods.
Wednesday’s report showed energy prices fell 2% last month, led by a 4.1% drop in gasoline costs. Over the past year, energy prices have fallen 15% while gasoline is down more than 23%.
Prices for most other items rose. Shelter costs—reflecting rent and mortgage payments—climbed 0.2% from July and 3.1% over the year. Food prices were up 0.2% over the month and 1.6% over the year. Medical commodities increased 0.3% over the month and 3.4% over the year.
Weak inflation poses a conundrum for Fed officials as they head into a pivotal meeting Wednesday and Thursday. Officials are looking to raise the benchmark interest rate for the first time in nearly a decade after a stretch of robust job growth that has pushed down unemployment to 5.1%. They have indicated they could raise rates as early as this week to reduce the risk of an overheating economy and asset bubbles.
But central bank leaders have said they first want to be confident inflation is heading toward their 2% target. Low inflation is a sign of persistent weakness in the U.S. and abroad, and raising rates too soon risks harming the economic expansion.
The Fed prefers another inflation measure—the Commerce Department’s price index for personal consumption expenditures—to determine whether prices are growing at the central bank’s target. That index rose just 0.3% in the year through July, the agency reported last month, while the core measure grew 1.2%.
Also on September 16, a separate Labor Department report showed Americans’ inflation-adjusted weekly earnings grew 0.7% in August. Earnings rose because of increases in both workers’ hourly pay and hours. Average hourly earnings, adjusted for inflation, rose 0.5%, the biggest jump since January. The average work week grew 0.3%.
From a year earlier, real average weekly earnings rose 2.3% and hourly earnings rose 2%.