Consumer prices drop 0.1 percent By MARTIN CRUTSINGER, AP Economics Writer

Consumer prices drop 0.1 percent By MARTIN CRUTSINGER, AP Economics Writer
7 minutes ago



WASHINGTON - Consumer prices in August fell for the first time in 10 months as another big drop in energy costs offset higher food prices.

ADVERTISEMENT


The Labor Department reported Wednesday that its closely watched Consumer Price Index dipped 0.1 percent last month, slightly better than the flat reading that had been expected. It was the first decline in consumer prices since a 0.4 percent fall in October 2006.

The new report came a day after the Federal Reserve cut a key interest rate by a half point, a bigger decrease than had been expected, in an effort to ensure that recent financial market turbulence didn't push the country into a recession.

The Fed in its statement said that "some inflation risks remain," but by making the bolder half-point cut in its federal funds rate, it was signaling that it clearly believed the threat of a recession outweighed concerns about inflation.

The Commerce Department reported Wednesday that construction of new homes fell by 2.6 percent in August to a seasonally adjusted annual rate of 1.331 million units, the slowest pace in 12 years.

Outside of food and energy, inflation remained well contained as well in August, rising by 0.2 percent. This core inflation rate had been up by just 0.2 percent or 0.1 percent for the past six months.

The 0.1 percent fall in overall prices reflected a hefty 3.2 percent drop in energy costs. It was the third straight decline in energy and the biggest drop since last October. The price of gasoline dropped by 4.9 percent while natural gas prices were down 4.2 percent.