Underlying Inflation Flat

By DARRELL A. HUGHES And LUCA DI LEO

Less-volatile core inflation has been flat for some time.

U.S. consumer prices rose in August for the second consecutive month driven by gasoline and food, but underlying inflation was flat last month.

Consumer prices rose slightly in August but underlying inflation was flat. Kelly Evans, Sara Murray, Dennis Berman and Evan Newmark discuss the data and what it says about the risk of deflation and the Federal Reserve's next policy move.

The Labor Department said in a report Friday that the seasonally-adjusted consumer price index for August rose by 0.3% from July. Consumer prices also rose by 0.3% in July, after falling by 0.1% in June.

Meanwhile, the underlying inflation rate that is more closely watched by the Federal Reserve was unchanged. Core consumer prices, which strip out changes in volatile energy and food prices, posted small gains in the previous three months.

Economists surveyed by Dow Jones Newswires ahead of the release expected consumer prices to rise by 0.3% and the core CPI to rise by 0.1% in August.

Higher gasoline prices led the increase, rising for the second consecutive month after five straight declines. Food prices were also higher. Failing crops in Russia, Argentina and other countries recently due to dry weather have led to higher agricultural commodities prices, in particular wheat.

The gasoline index rose by 3.9% in August, after a 4.6% increase in July. The food index in August was up by 0.2% as the fruits and vegetable index increased, following a series of recent declines. Cereals and bakery products also showed small increases.

The consumer price rise follows small increase in other price indicators for August. The data suggests the U.S. economy continues to avoid a dangerous slide into deflation, but some economists still see risks of falling prices and wages in the future on the back of the recovery's weakness. The recovery has lost steam and annual inflation stands around 1.0%, below the Fed's informal target. The central bank last month resumed buying small amounts of government debt in an attempt to kick-start growth.

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Associated Press
.Compared to August 2009, consumer prices are up 1.1%, only slightly lower than the 1.2% year-on-year rise in July.

Excluding food and energy, however, consumer prices in August were 0.9% higher than a year earlier. That's below the Fed's informal inflation target of between 1.5% and 2.0%.

Without rounding, Friday's report showed that consumer prices rose by 0.254% in August. Excluding food and energy items, consumer prices were up 0.046% unrounded.

In a separate report, the Labor Department said real average weekly earnings were unchanged in August from July, as both the average work week and hourly earnings were flat.

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