Consumer prices inch up in August
Some say period of low inflation could last years
WASHINGTON — Consumer prices posted a small rise in August, but outside of a big jump in volatile gasoline prices, inflation was essentially flat.
Consumer prices edged up 0.3 percent in August, matching the July increase, the Labor Department said yesterday. Core inflation, which excludes food and energy, showed no increase.
The 2007-2009 recession and the weak recovery since have banished inflation as an immediate threat. Sluggish demand is preventing most businesses from raising prices, and high unemployment is keeping a lid on wage pressures.
Over the past 12 months, core inflation is up just 0.9 percent, matching the lowest 12-month gain in 44 years. Overall prices are up a modest 1.1 percent during the past 12 months.
Analysts said that those who are fortunate enough to have jobs and stable finances are in good shape because prices are stable and earlier fears of deflation have faded. Businesses are not raising prices because they don’t want to scare away the few customers they have. Many economists predicted this period of low inflation could last for several years.
Still, the absence of inflation has not prompted Americans to spend enough to greatly improve the economic picture, and that’s unlikely to change in the short run. A separate report by the University of Michigan/Reuters poll of consumers said consumer confidence took a sharp dip in September.
The absence of inflationary pressures has given the Federal Reserve room to keep interest rates at record lows for nearly two years. Fed policy makers meet again on Tuesday and are expected to keep their target for the federal funds rate at zero to 0.25 percent, where it has been since December 2008.
The August and July increases followed three months of price declines. Those declines had raised concerns that the country could be facing a threat of deflation, something that has not been a problem in the United States since the Great Depression. With overall prices rising again and the economy posting signs of emerging from its summer swoon, worries about deflation have decreased. But some economists say a mild bout of deflation is still a possibility if economic growth remains weak and unemployment stays high.
If that happens, “inflation will keep falling and eventually deflation, albeit probably a mild Japan-style one, will set in,’’ said Paul Ashworth, senior US economist for Capital Economics.
Sung Won Sohn, an economist at the Martin Smith School of Business at California State University, said the economy is not fully utilizing its factories and workers. With less being produced and fewer people employed, business are selling fewer goods and they cannot raise prices. Sohn thinks it will take four or five years before inflation becomes a threat again in the United States.