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Consumer prices drop in August after streak of modest growth

Lance Thompson pumps gas into his truck at a Love’s station in St. Joseph, Mo., in July. The Labor Department reports consumer prices edged down in August. (Associated Press)
Martin Crutsinger Associated Press

WASHINGTON – U.S. consumer prices edged down in August, the first monthly drop since spring 2013, as gasoline, airline tickets and clothing prices all fell. It was the latest evidence that inflation remains under control.

Consumer prices edged down 0.2 percent last month following a 0.1 percent gain in July, the Labor Department reported Wednesday. It was the first decline since a similar 0.2 percent drop in April 2013. Core prices, which exclude energy and food, were unchanged in August, the first time there hasn’t been an increase since October 2010.

Over the past 12 months, overall prices and core prices are both up a modest 1.7 percent. These gains are well within the 2 percent annual increase for inflation that the Federal Reserve considers optimal.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the drop in prices would give a “powerful boost” to “doves” on the Fed, officials who argue that at the moment unemployment and weak economic growth are bigger problems than the threat of future inflation.

Analysts believe that inflation will remain moderate in coming months, helped by falling energy prices. AAA reports the nationwide average for a gallon of gasoline is $3.38, down eight cents from a month ago and 14 cents lower than a year ago.

The recent decline in gasoline prices is one reason economists are optimistic that consumer spending will show solid gains in the coming months. A drop in gasoline prices means consumers will have more to spend on other items.

For August, energy prices fell 2.6 percent, the second straight monthly decline. Gasoline costs were down 4.1 percent in August after a smaller 0.3 percent July drop.

Food costs edged up 0.2 percent in August following a 0.4 percent increase in July. Over the past 12 months, food costs have risen 2.7 percent reflecting drought in California that has cut into crop yields.

The cost of new vehicles and alcoholic beverages was up in August, but the price of airline fares, recreation, home furnishings, clothing and used cars were all down.