WASHINGTON (AP) — Consumer prices rose slightly in August because of higher gas prices, another sign the weak economy is keeping inflation in check.
While prices are up slightly over the 12 months ending in August, they are well within the Federal Reserve’s comfort zone. That means the central bank faces little pressure to raise its benchmark interest rate, a step it takes to ward off high inflation. The Fed has reduced the interest rate it charges banks for overnight loans to record low of nearly zero in an effort to revive the economy.
The Labor Department said Wednesday that the Consumer Price Index rose 0.4 percent in August, after a flat reading in July. Wall Street economists expected a 0.3 percent increase, according to a survey by Thomson Reuters.
Excluding volatile food and energy prices, the core price index rose 0.1 percent, matching expectations.
Prices fell 1.5 percent in the last year, the department said, as gas prices dropped sharply from record levels last summer.
The core index rose 1.4 percent in the 12 months ending in August, the smallest increase in more than five years.
A 1.3 percent drop in the price of cars last month, the steepest fall in nearly 37 years, held back the core index. Discounts stemming from the government’s “cash for clunkers” program — which provided rebates of up to $4,500 to consumers who traded in older cars for newer, more fuel-efficient models — caused the decline.
Gas prices rose 9.1 percent in August on a seasonally adjusted basis and accounted for 80 percent of the rise in the consumer price index. Still, gas prices are 30 percent below last year’s record levels, when prices at the pump topped $4 a gallon.
Consumers have cut sharply back on their spending in response to the worst recession since the 1930s. That has made it difficult for retailers and manufacturers to raise prices, keeping inflation at its lowest levels in decades. Last month, the department said consumer prices fell 2.1 percent in the 12 months ending in July, the steepest drop since 1950.
Still, there are signs the economy is recovering and consumers may be willing to spend again. Retail sales jumped 2.7 percent in August, the Commerce Department said Tuesday, the biggest increase in more than three years.
And the Federal Reserve chairman Ben S. Bernanke said Tuesday the recession is likely over, though he noted that the economy isn’t likely to grow fast enough to lower unemployment anytime soon. Most economists expect the jobless rate to top 10 percent next year, up from its current 9.7 percent.
In another report, the deficit in the broadest measure of foreign trade shrank in the spring to the lowest level in relation to the total economy in 18 years, another dramatic sign of how much the recession had reduced America’s appetite for foreign goods.
The Commerce Department said Wednesday that the deficit in the current account dropped to $98.8 billion in the April-June quarter. That represented 2.8 percent of the total economy as measured by the gross domestic product, the smallest percentage since the first quarter of 1991.
The deficit was down 5.4 percent from the first quarter revised total of $104.5 billion. Analysts had been forecasting a second quarter deficit of $92 billion.
