Consumer-level inflation was contained in August thanks to a sharp decline in energy prices, a welcome sign for observers hoping for the U.S. central bank will cut interest rates later Tuesday.
The Labor Department said that its consumer price index fell 0.1% in August, the first decline in almost two years. The headline number was weighed down by a 4.2% decline in gasoline prices and a 6.5% drop in heating oil. Additionally, food prices rose a less-than-expected 0.6%.
The closely watched core figure, which excludes food and energy and is considered a proper gauge of inflation at the consumer level, rose 0.2%. That figure is down from 0.3% in July. The core rate is now up 2.5% in the past year, outside of the
so-called comfort zone.
"Some core components, like apparel, still under upward pressure from the weak dollar and higher commodity costs, but these will fade in time," says Ian Shepherdson, chief economist with High Frequency Economics, in an email. "But the big story in CPI will be the slowing headline,
which should be below 4% year over year by December and below 2% by mid-2009."
At 2:15 p.m. EDT, the
will release its interest rate policy statement. A week ago the Fed was expected to leave the fed funds rate unchanged at 2%, but recent events have increased the likelihood of a 25-basis-point cut at this meeting to 100% and a 50-basis-point cut to 20%.