Consumer Prices Rise in August, As Expected

U.S. consumer prices and costs excluding food and energy both rose a modest 0.2 percent last month, the government said on Friday in a report that could reassure the Federal Reserve that inflation pressures are easing.

Both the Labor Department's overall consumer price index and the closely watched core rate, an inflation gauge that strips out volatile food and energy costs, were in line with Wall Street expectations.

The tame rise in the core rate followed a 0.2 percent rise in July after four straight months of more worrisome 0.3 percent increases, reinforcing financial market expectations that the U.S. central bank will keep interest rates on hold at its policy meeting next week.

I don't think this does anything to change the Fed's probable path of sitting sidelined on September 20, said Richard Yamarone, Chief Economist at Argus Research in New York.

U.S. Treasury debt prices rose after the report helped soothe inflation fears among investors. The benchmark 10-year Treasury was up 6/32 in price for a yield of 4.77 percent, versus 4.79 percent before the data. Stock futures were pointing to a stronger market open.

Inflation is still exceeding most, if not all, comfort zones with core inflation at 2.8 percent, but we're not getting a surge or spike which would set off alarms at the central bank. They are willing to accept a slow uptick in inflation, Yamarone said.

For the 12 months ended in August, core consumer prices have risen 2.8 percent, in line with forecasts, compared to 2.7 percent for the 12 months to July.

Overall consumer prices rose 3.8 percent in the 12 months ended in August, compared with 4.1 percent for the July period and Wall Street forecasts of 3.9 percent.

August energy price increases slowed substantially at the consumer level, climbing by a seasonally adjusted 0.3 percent after a 2.9 percent surge in July.

Gasoline costs were up just 0.2 percent in August after a 5.3 percent rise in July, but analysts expect the next report on consumer prices to show a sizable drop. The federal Energy Information Administration said on Monday that retail gas prices have fallen 38 cents over the past month to $2.62 a gallon, the lowest since April 3.