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Consumer Prices Edge Up in August

The 0.1% rise suggests inflation isn't a problem and that the Fed can raise rates gradually.

September 17, 2004|From Associated Press

Consumer prices barely budged in August, suggesting that inflation isn't a problem for the economy and Federal Reserve policymakers can stick with a gradual approach to raising interest rates.

The government's closely watched inflation barometer, the consumer price index, rose 0.1% in August from the previous month, the Labor Department reported Thursday. Falling prices for clothes, cars and airfares helped temper rising prices for medical care, education and some food items.

The tiny rise came after consumer prices dipped 0.1% in July.

Excluding energy and food prices, which can swing widely from month to month, "core" prices also inched up 0.1% in August for the third month in a row.

The inflation picture was slightly better than some analysts had expected. They had forecast a 0.2% rise in the overall CPI and for core prices.

A slowing in economic growth in the second quarter, analysts said, made it harder for some companies to raise prices and induced others to cut them, thus improving the inflation climate.

As "the economy perks up, pricing power may reappear, but for now, the outlook in the near term is benign," said Steve Stanley, chief economist at RBS Greenwich Capital.

Analysts said the CPI report boded well for the Fed maintaining a measured approach to raising short-term interest rates.

The Fed is widely expected next week to boost a key rate to 1.75% from 1.5%. That would be its third rate increase this year. Analysts say rates are still low by historical standards and need to go up to help prevent inflation from becoming a problem.

In other economic reports:

* New claims for unemployment benefits rose last week by a seasonally adjusted 16,000 to 333,000, the Labor Department said. The pace of layoffs, however, has slowed over the last year. A year ago, new filings were at 401,000.

* U.S. households saw their net worth rise to a record $45.9 trillion in the second quarter, reflecting in part higher real estate values. That surpassed the high reached in the first quarter, the Federal Reserve said.

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