US consumer prices post first decline in 7 months

August CPI down 0.1%
August CPI down 0.1%

U.S. consumer prices unexpectedly fell in August as gasoline prices resumed their decline and a strong dollar curbed the cost of other goods, pointing to tame inflation that complicates the Federal Reserve's decision whether to hike interest rates.

The Labor Department said on Wednesday its Consumer Price Index slipped 0.1 percent last month, the first decline since January, after edging up 0.1 percent in July. In the 12 months through August, the CPI rose 0.2 percent after a similar gain in July.

Signs of a disinflationary trend reasserting itself are in stark contrast with a rapidly tightening labor market and highlight the dilemma Fed officials face as they contemplate raising interest rates for the first time in nearly a decade.

The U.S. central bank's policy-setting committee was due to start a two-day meeting later on Wednesday. While solid data on consumer spending, housing and employment have been supportive of a rate hike, that has been undermined by recent global financial markets turmoil.

Sluggish wage gains and a strong dollar have contributed to keeping inflation below the Fed's 2 percent target.

Economists polled by Reuters had forecast the CPI unchanged in August and rising 0.2 percent from a year ago.

The so-called core CPI, which strips out food and energy costs, ticked up 0.1 percent last month after a similar gain in July. The muted gains in the core CPI reflect the dollar's impact on the cost of imported goods. The rental index increased 0.3 percent, matching a similar gain in July.

In the 12 months through August, the core CPI increased 1.8 percent. It was the fifth time in six months that the 12-month change was 1.8 percent. The Fed tracks the personal consumption expenditures price index, excluding food and energy, which is running well below the core CPI.

Last month, gasoline prices fell 4.1 percent, the biggest drop since January, after rising 0.9 percent in July. Food prices gained 0.2 percent as egg prices increased 7.7 percent.

Egg prices are now up 35.3 percent from a year ago, reflecting the impact of the avian flu that struck some parts of the country early in the year.

There were also increases in tobacco prices and apparel. However, airline fares fell 3.1 percent and used car prices declined for a fourth straight month. Household furnishings also fell as did the cost of recreation.