The Bureau of Labor Statistics said that consumer prices fell 0.2 percent in August, the first monthly decline since April 2013. The decrease stemmed largely from reduced energy costs, which were off 2.6 percent in August. Gasoline prices decreased 4.1 percent for the month. Indeed, we have seen the average price of regular gasoline decline from $3.47 a gallon during the week of July 28 to $3.40 a gallon for the week of August 25, according to the Energy Information Administration. It has fallen further since then, averaging $3.35 per gallon this week.
In contrast, food prices continued to rise, up 0.2 percent, albeit at a slower pace than earlier in the year. Food costs have risen 2.4 percent year-to-date, or 2.7 percent over the past 12 months. As with past months, the largest food price increases in August were for beef and veal, chicken, eggs, fish, ham and seafood. These gains were somewhat offset, however, by decreased monthly costs for fruits and vegetables and beverages.
Meanwhile, when you exclude food and energy items, consumer prices were unchanged, mirroring producer price index data released yesterday. There were higher prices for new motor vehicles and shelter, with reduced costs for apparel, household furnishings and used cars and trucks.
Overall, the consumer price index rose 1.7 percent from August 2013 to August 2014, down from the 2.0 percent pace observed in July. This suggests a slight easing in inflationary pressures, even as it still reflects an acceleration from the 1.1 percent year-over-year rate in February. Similarly, core inflation – which excludes food and energy items – was also up 1.7 percent year-over-year, down from 1.9 percent the month before.
The Federal Open Market Committee (FOMC), which is winding up its meeting today, no doubt welcomes news that pricing pressures have lessened somewhat in August. Core inflation remains below the Federal Reserve’s stated target of 2 percent. Still, the FOMC will closely watch to see how pricing pressures develop in the coming months, particularly as it prepares to start normalizing short-term rates in early 2015.
Chad Moutray is the chief economist, National Association of Manufacturers.