- Gregory Daco, head of U.S. macroeconomics at Oxford Economics USA
Consumer prices in the US declined in August as cheaper gasoline kept inflation below the targeted level of the Fed. The US consumer price index dropped 0.1%, the first decline since January, following a mere 0.1% gain in July, according to the Labor Department. Measured on an annual basis, CPI rose just 0.2% in August. A 15% decrease in energy costs over the past 12 months and a strengthening US Dollar are acting as a brake on inflation that the Fed views as temporary. However, the core measure, which excludes volatile fuel and food costs, climbed 0.1% in the reported month. The core inflation rate over the past twelve months remained at 1.8% in August.
The data came just a day before the Fed's much anticipated rate decision. Fed Vice Chairman Stanley Fischer recently said that the low inflation was mostly owed to the falling oil prices in addition to a rising Dollar and "ongoing economic slack." Fischer noted, however, that Fed policymakers remain "reasonably confident" that inflation will reach their target levels. However, there are a number of economists, who doubt Fed's confidence, saying that the Fed has been overconfident about inflation in the past. Nonetheless, if the Fed waits too long, then inflation may rise to higher than the target rate of 2% causing deeper concerns of economic instability.
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