Washington, DC September 15, 2006--The rate of inflation slowed to 0.2 percent in August, from July's 0.4 percent increase, according to the Labor Department's latest Consumer Price Index (CPI) readings. Many analysts are saying that the decrease makes it unlikely that the Federal Reserve will increase interest rates next week.
Over the previous year, the consumer price index, which many experts read as an indicator of inflation, was up 3.8 percent. The Federal Reserve Board has resisted interest rate hikes, reasoning that inflation has already slowed--along with many other economic indicators.
Even so, the CPI may not tell the whole story. Basic core inflation, which is also an important number, does not count changes in food and energy prices, and on a yearly basis, core inflation was up slightly (0.1 percent) in August.
August and September have seen oil prices fall to their lowest levels since March, after reaching an all-time high in July. Some analysts predict further gasoline price reductions heading into the November elections.
The steady rise in core inflation, however, suggests longterm inflation may only be obscured by pre-election gas price fluctuations.
“Core CPI ... is consistent with continued underlying inflation pressures and inflation running above a desirable pace for policymakers,” said Alan Ruskin, international strategist at RBS Greenwich Capital.
Air fares fell by 1.9 percent, helping to down core inflation.
Inflation was further boosted by rent hikes, which outpaced inflation; owners' equivalent rent rose 0.3 percent. Clothing prices, which were down in July, rose in August, even as housing costs edged up.
US stocks rallied after the CPI data was released, and benchmark 10-year Treasuries rose, sending yields lower.
