Prices paid by American households declined in August as cheaper gasoline helped keep inflation below the objective of Federal Reserve policy makers.
The consumer-price index dropped 0.1 percent, the first decline since January, after rising 0.1 percent in July, Labor Department figures showed Wednesday. The so-called core measure, which strips out often-volatile fuel and food costs, rose 0.1 percent for a second month. Goods prices declined, while services barely rose.
A 15 percent plunge in energy costs over the past 12 months and a rising dollar are acting as a brake on inflation that the Fed views as temporary. Central bankers, who conclude a two-day meeting on Thursday, will have to weigh restrained prices, uneasy financial markets and a resilient U.S. labor market as they consider raising interest rates.
“The Fed is certainly not hitting its inflation goal,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, said before the report. “These numbers could temporarily go even further away from the Fed’s goal.”
At the same time, “it’s reasonable to predict that the effect of the dollar and oil prices will fade over the course of the next two years,” he said.
Estimates in the Bloomberg survey for the CPI ranged from a decline of 0.2 percent to a gain of 0.3 percent.
The decline in the cost of living allowed Americans’ paychecks to stretch further. Hourly earnings adjusted for inflation rose 2 percent in August from a year earlier, a separate report from the Labor Department showed. Compared with the prior month, real earnings advanced 0.5 percent, the most since January.
The consumer price gauge increased 0.2 percent in the 12 months ended in August, the same as in July.
The core CPI measure, which excludes volatile food and fuel costs, rose 1.8 percent from August 2014, matching the year-over-year gain a month earlier.
The median projection in the Bloomberg survey called for the core gauge to rise 0.1 percent from July, and 1.9 percent from the same month last year.
Energy costs decreased 2 percent from a month earlier, the biggest decline since January. Gasoline prices slumped 4.1 percent, the most in seven months.
The nationwide average cost of a gallon of regular gasoline was $2.31 as of Tuesday, down from this year’s peak of $2.80 reached in the middle of June, according to AAA, the biggest U.S. motoring group.
Food prices climbed 0.2 percent for a second month. Inflation was held back in August by a fourth straight decline in the cost of used motor vehicles and a 3.1 percent decrease in air fares, while shelter costs cooled.
Medical care costs were stagnant. These readings often vary from results for this category within the Fed’s preferred measure of inflation — the core PCE deflator that’s tied to consumption. Economists attribute the discrepancy to different methodologies.
The Fed’s preferred gauge of inflation, linked to consumer spending, hasn’t been above the central bank’s 2 percent goal since March 2012. It climbed by 0.3 percent in July from a year earlier. The Commerce Department will release the August figure on Sept. 28.
Fed policy makers have said they expect inflation to return to their target as the drag from lower oil costs and the rising dollar diminishes.
Futures contracts show the odds of an increase this month have dropped to 32 percent from 48 percent a month ago, according to data compiled by Bloomberg.
The CPI is the broadest of three price gauges from the Labor Department because it includes goods and services. About 60 percent of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.
Wholesale prices were little changed in August, while the import cost gauge fell 1.8 percent from a month earlier, the biggest drop since January.
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