Consumer Prices Rise, but Underlying Trend Flat

From MSN Money.com:

Underlying inflation pressures were muted in August, keeping deflation fears alive, even though a rise in food and energy costs drove overall consumer prices higher.

The core consumer price index was flat last month, the Labor Department said on Friday, defying financial market expectations of a 0.1 percent gain. The core CPI, which excludes food and energy prices, rose 0.1 percent in July.

While the report strengthened the Federal Reserve's bias toward further monetary easing, the data was not so weak that the U.S. central bank is expected to announce new steps to ease monetary policy when it meets on Tuesday to assess the economy, analysts said.

"It keeps alive the possibility that the trend could turn negative over the next year or two, but the numbers are not weak enough to encourage them to start a new purchasing program next week," said Jim O'Sullivan, chief economist at MF Global in New York.

The overall CPI rose 0.3 percent, lifted by higher food and energy costs, after a similar gain in July. August's rise was a touch above expectations of a 0.2 percent increase.

Consumer Prices Dip For Second Straight Month

For the second month in a row, American consumers are seeing lower prices on goods, energy bills, and other services. According to Forbes.com, earlier today the Labor Department reported that the Consumer Price Index dropped 0.2% in May, following a 0.1% decrease last month.

It marked the biggest decline since consumer prices plunged 0.7 percent in December 2008. That was a period when the worst recession since the 1930s stoked fears of deflation. The country didn't get stuck in a deflationary spiral then, and probably won't now, economists say.

Deflation is dangerous. It's a widespread and prolonged drop not only in the prices of goods at stores but also real estate, stocks and wages. America's last serious case of deflation was during the Great Depression of the 1930s.

Meanwhile, "core" consumer prices, which strip out volatile energy and food, edged up 0.1 percent in May, after being flat in April. That meant core prices are up only 0.9 percent over the past year - below the Fed's inflation target.