Consumer prices up, but Fed will hold rates firm

WASHINGTON — Rising gasoline costs put a dent in motorists’ wallets in August and contributed to the biggest increase in consumer prices in five months, the Labor Department reported Tuesday.

The government’s most closely watched inflation barometer, the Consumer Price Index, rose by 0.3 percent, matching the increase of last March. Consumer prices had gone up 0.2 percent in both June and July.

Energy costs jumped 2.7 percent in August, up from a 0.4 percent rise the previous month. Most of the increase was due to skyrocketing prices for gasoline, which soared by 6.2 percent.

"Energy prices were the villain again," said Ken Mayland, president of ClearView Economics.

Excluding energy and food prices, which tend to swing widely from month to month, "core" consumer prices nudged up by just 0.1 percent in August, half the 0.2 percent increase of the previous month. The showing on the core inflation rate suggested that most other prices are moderate.

The latest CPI reading "confirms inflation is relatively modest, at least for now," said Stephen Cecchetti, economics professor at Brandeis University. From an economic perspective, "there isn’t much here to lose sleep over," he added.

For the 12 months ending August, consumer prices rose 2.2 percent, compared with a 2.4 percent increase for all of last year. Core prices, excluding energy and food costs, meanwhile, went up by just 1.3 percent, the smallest increase since 1966, and down from a 1.9 percent advance for all of 2002.

The weakness in core prices is a byproduct of a lackluster economic climate seen earlier this year that has made it difficult for some companies to raise prices. That’s a benefit for consumers, but can squeeze producers’ profits margins.

Computer prices fell by 2.9 percent in August. Airline fares dropped by 1.6 percent and costs for lodging prices dipped by 0.3 percent.

But those and other price decreases were swamped last month by rising energy prices, chiefly for gasoline. Gasoline prices skyrocketed after the mid-August blackout, but more recently have shown signs of stabilizing.

Food prices, meanwhile, increased 0.3 percent in August, up from a tiny 0.1 percent rise. Rising prices for dairy products and beef and veal outweighed falling prices for fruits and pork.

Educational costs continued to put a strain on consumers’ wallets. Prices for college tuition and fees rose 2.5 percent in August, the biggest increase since September 1991.

Medical care costs, another sore spot for many people, rose 0.2 percent in August and are 3.9 percent higher than a year ago.

"As long as you don’t eat, drive, heat, cool or light your home, are in need of medical care, insure anything, have any children in college or use water, sewer or trash services, there is no inflation," quipped economist Joel Naroff, president of Naroff Economic Advisors.