WASHINGTON - Consumer prices in August posted the first monthly decline in nearly two years as Americans finally get a break from surging energy prices.
The Labor Department reported Tuesday that consumer prices edged down 0.1 percent last month, a significant improvement from a 1.1 percent price spike in June and a 0.8 percent rise in July. The cost of gasoline and other fuels have plunged, reflecting big drops in crude oil prices.
The decline, which was in line with expectations, may give the Federal Reserve the room it needs to cut interest rates if Fed officials feel a rate reduction could help stabilize turbulent financial markets.
Stocks turned in their worst performance since 2001 on Monday, with the Dow Jones industrials plunging 500 points on worries about a teetering financial system. Stocks were headed for a lower opening on Tuesday, too.
Fed officials were meeting to review interest rates on Tuesday. The possibility of a rate cut has suddenly reappeared given the chaotic reaction to the bankruptcy filing by Lehman Brothers on Monday and the pressured sale of Merrill Lynch to Bank of America as a severe credit crisis has triggered the biggest restructuring of Wall Street since the 1930s.
The 0.1 percent drop in consumer prices in August was the first monthly decline since prices fell by 0.5 percent in October 2006, another time where energy prices took a big decline.
Core inflation, which excludes energy and food, was also well-behaved in August, edging up by a slight 0.2 percent, after two months when core prices had risen by 0.3 percent. Both the overall decline and the small increase in core inflation were in line with economists' expectations.
Even with the dip in overall prices, paychecks continued to be under pressure. Weekly wages of non-supervisory workers dropped by 2.5 percent in August compared to a year ago, the 11th straight month in which wages have been down on a year-over-year basis.
Over the past 12 months, overall inflation is up by 5.4 percent. That's a slight improvement from the 5.6 percent rise for the 12 months ending in July, which had been the largest year-over-year increase in 17 years. Core inflation is up 3.4 percent over the past 12 months.
Energy prices plunged by 3.1 percent in August, the biggest one-month drop since October 2006. Gasoline prices fell by 4.2 percent, natural gas slid 5.8 percent and home heating oil prices dropped by 9.6 percent.
Food costs continued to surge upward in August, rising by 0.6 percent after a 0.9 percent increase in July. Prices for fruits and vegetables showed big gains.
Prices for clothing posted a 0.5 percent gain during the month while the price of airline tickets, reflecting previously monthly gains in jet fuel, showed a 1.6 percent increase.