WASHINGTON -- U.S. consumer prices edged down in August, the first monthly drop since spring 2013, as gasoline, airline tickets and clothing prices all fell. It was the latest evidence that inflation remains under control.
Consumer prices edged down 0.2 percent last month following a tiny 0.1 percent gain in July, the Labor Department reported Wednesday. It was the first decline since a similar 0.2 percent drop in April 2013. Core prices, which exclude energy and food, were unchanged in August, the first time there hasn't been an increase since October 2010.
In other economic reports released Wednesday, the National Association of Home Builders/Wells Fargo sentiment measure rose in September to a nine-year high, and a measure of the U.S. trade deficit narrowed slightly in the April-June quarter, reflecting gains in exports of oil and civilian aircraft and a bigger surplus in Americans' overseas investment earnings.
Over the past 12 months, overall retail prices and core prices are both up a modest 1.7 percent. These gains are well within the 2 percent annual increase for inflation that the Federal Reserve considers optimal.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said that the drop in prices would give a "powerful boost" to "doves" on the Fed, officials who argue that at the moment unemployment and weak economic growth are bigger problems than the threat of future inflation.
Analysts believe that inflation will remain moderate in coming months, helped by falling energy prices.
A recent decline in gasoline prices is one reason that economists are optimistic that consumer spending will show solid gains in the coming months. A drop in gasoline prices means consumers will have more to spend on other items.
For August, energy prices fell 2.6 percent, the second straight monthly decline. Gasoline costs were down 4.1 percent in August after a smaller 0.3 percent July drop.
Food costs edged up 0.2 percent in August following a 0.4 percent gain in July. Over the past 12 months, food costs have risen 2.7 percent, reflecting drought in California that has cut into crop yields.
The cost of new vehicles and alcoholic beverages were up in August, but the price of airline fares, recreation, home furnishings, clothing and used cars were all down.
The National Association of Home Builders/Wells Fargo builder sentiment measure for September climbed to 59, exceeding the highest estimate in a Bloomberg survey of economists, from 55 in August, the Washington-based group reported. Readings above 50 mean more respondents said conditions were good.
Improvement in the job market and low-interest rates spurred buying interest this month, as the group's index of foot traffic through model homes jumped to the highest level since October 2005. Faster wage gains would provide extra momentum for residential real estate, which has seen lackluster demand from first-time buyers.
"Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction," Kevin Kelly, National Association of Home Builders chairman and a builder and developer in Wilmington, Del., said in a statement.
The U.S. trade deficit in the current account shrank to $98.5 billion in the second quarter, down 3.5 percent from the revised $102.1 billion deficit in the January-March period, the Commerce Department reported.
It was the smallest current account deficit since an imbalance of $87.3 billion in the final three months of last year. The lower deficit reflected a variety of factors including gains in U.S. exports and a larger surplus in earnings by Americans in their overseas investments.
The current account is the broadest measure of trade, covering not only the flow of goods and services but also investment flows.
Economists carefully track the current account deficit because it is a measure of how much foreign financing the country needs. The second quarter deficit represented 2.3 percent of total economic output, as measured by the gross domestic product, down from 2.4 percent in the first quarter. The highest deficit as a percentage of GDP was 6.3 percent set in the fourth quarter of 2005.
Information for this article was contributed by Martin Crutsinger of The Associated Press and Jeanna Smialek of Bloomberg News.
Business on 09/18/2014