U.S. consumer prices fell for the first time in nearly 1½ years in August and underlying inflation pressures were muted, which could lessen the urgency for the Federal Reserve to raise interest rates.
The Labor Department said Wednesday its Consumer Price Index declined 0.2 percent last month as a broad decline in energy prices offset increases in food and shelter costs.
It was the first drop since April last year and followed a 0.1 percent gain in July.
Economists polled by Reuters had forecast consumer prices being flat in August. The CPI increased 1.7 percent in the 12 months through August after rising 2.0 percent in July.
Inflation has cooled somewhat after accelerating in the second quarter. Stripping out food and energy prices, the so-called core CPI was unchanged last month for the first time since October 2010 after nudging up 0.1 percent in July.
In the 12 months through August, the core CPI rose 1.7 percent, slowing down from July's 1.9 percent increase.
The Fed targets 2 percent inflation and it tracks an index that is running even lower than the CPI.
The CPI report was released ahead of the conclusion of the U.S. central bank's two-day policy meeting. The Fed is scheduled to release its policy statement at 2:00 p.m. EDT (1800 GMT), which will be watched for signals on the timing of the first interest rate increase.
Energy prices fell for a second straight month, with gasoline prices plunging 4.1 percent after declining 0.3 percent the prior month.
Food prices rose 0.2 percent after advancing 0.4 percent in July as the effects of a drought in California linger.
The core CPI was damped by a second straight month of sharp declines in airline fares. Falling apparel and used car prices also weighed. Recreation prices recorded their largest drop since December 2009, while household furnishings declined.
Rents increased 0.2 percent last month after rising 0.3 percent in July.
A separate report showed the U.S. current account deficit unexpectedly narrowed in the second quarter, supported by a partial reversal of a large equity disinvestment that had occurred in the previous quarter.
The Commerce Department said the current account gap, which measures the flow of goods, services and investments into and out of the country, fell to $98.51 billion from a revised $102.11 billion shortfall in the first quarter.
That was the smallest gap since the fourth quarter of 2013.
Economists polled by Reuters had forecast the deficit widening to $114.0 billion from a previously reported $111.2 billion shortfall in the first three months of the year.
A large equity disinvestment resulted in an outflow of $121.71 billion in the first quarter, which the government at that time described as an "atypical" occurrence.
There was a partial reversal in the second quarter, with foreign direct investment inflows increasing $72.01 billion.
The current account deficit represents 2.3 percent of gross domestic product, down from 2.4 percent in the first quarter.
The current account deficit has been gradually shrinking, hitting a 14-year low in the fourth quarter of 2013, helped in part by declining petroleum imports as the nation reduces its dependency on foreign oil.
In the second quarter, goods exports increased 2.3 percent to $408.81 billion. Imports, however, rose 2.8 percent to $597.97 billion.
The surplus on primary income increased to $53.1 billion in the second quarter from $52.4 billion in the first quarter.