For the second time in less than a week, government inflation figures came in less than expected, a development that could take some of the pressure off the
to raise interest rates for the third time in three months at its next monetary policy meeting in September.
The government Tuesday said consumer prices fell 0.1% in July, when economists were expecting a 0.2% increase, on top of June's 0.3% gain. It was the first decline in eight months.
Equally important, the core rate of retail inflation, which excludes energy and food costs, rose just 0.1%, matching June's increase, but less than economists' consensus forecast of 0.2%.
In particular, food prices rose 0.3%, led by the meat, poultry, fish and eggs category. Gasoline prices fell 4.2%, after a 3.1% gain in June -- reflecting the short-lived decline of both crude oil and gasoline prices during the month.
On Friday, the government said the producer price index rose 0.1% in July, while the core rate -- which excludes volatile energy and food costs -- rose the same amount.
The consensus estimates were for the headline rate to rise 0.2% and the core rate to inch up 0.1%. Energy prices, however, rose 2.3%, the biggest increase since January, and a potential sign of things to come, as producer price trends lead those on the consumer, or retail, level.
In raising interest rates another quarter of a percentage point to 1.5% earlier this week, the Fed made reference to oil prices. "Inflation has been somewhat elevated this year, though a portion of the rise in prices seems to reflect transitory factors." Still, the central bank did not appear to be worried enough about inflation to alter its basic policy. "With underlying inflation still expected to be relatively low," the Fed's monetary policy committee said, "policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."