Inflation rate flat amid price confusion

By Annalyn Censky, staff reporter


NEW YORK (CNNMoney.com) -- Deflation? Inflation? Which is it?

Overall, food and energy costs drove consumer prices up -- albeit very slowly -- over the last 12 months, but stripping out those components, prices are flat year-over-year, the government said Friday.

Consumer prices rose 1.1% over the last 12 months ending in August, the Bureau of Labor Statistics said. While any number above zero means prices are rising, that's a slightly slower pace than in July, when the annual inflation rate was at 1.2%.

Amid confusion over whether inflation or deflation is the bigger threat to the U.S. economy, Friday's sluggish CPI number doesn't do much to assuage fears of falling prices. While prices are still rising, the slow rate is leaning dangerously close to deflation.

"Inflation is already too low. It won't necessarily fall below zero, but if it goes any lower, that's bad," said Dean Baker, co-director and economist with the Center for Economic and Policy Research.

Sluggish inflation poses a unique challenge to the economy. On one hand, prices that rise only very little may seem like a welcome break to struggling consumers.

But on the other hand, those modest price increases don't offer companies enough of a revenue boost to hire workers, at time when high unemployment is the major factor stalling the recovery, said Mark Vitner, a senior economist with Wells Fargo Securities.

He puts the odds of deflation happening -- meaning CPI dips below zero -- at 25%.

"We don't have a whole lot of inflation right now, and the economy seems to be losing momentum. But when you look at the numbers, what we see is low rates of inflation, no actual deflation," he said.

Rising energy and food prices are the biggest drivers keeping the overall index above water, with gasoline rising 4.1% over the last year and food rising 1%. The entire energy index -- which includes fuel, electricity and gas utilities -- rose 3.8%.

Stripping out the volatile food and energy component though, the so-called core CPI remained unchanged, showing prices rose 0.9% over the last year.

That low number means that prices excluding energy and food are also rising, but at a snail's pace -- a trend that mimics the economy at large, which has also grown lately but at a much slower rate than economists' had previously hoped.

For the month of August, overall prices were up 0.3%, in line with the 0.3% increase in July. Economists surveyed by Briefing.com were expecting a 0.2% increase during August.

Meanwhile, the core CPI was flat at zero in August, slightly lower than economists' forecasts for a 0.1% increase. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,416.85 225.48 1.31%
Nasdaq 4,683.41 45.41 0.98%
S&P 500 2,021.25 19.09 0.95%
Treasuries 1.75 0.03 1.57%
Data as of 2:05am ET
Company Price Change % Change
Pfizer Inc 31.83 -0.12 -0.38%
Yahoo! Inc 43.73 -2.73 -5.88%
Altria Group Inc 54.39 0.38 0.70%
Baxter International... 71.38 1.22 1.74%
International Paper ... 53.51 0.35 0.66%
Data as of Jan 29

Sections

Shake Shack is a huge success in New York. But will the 'fine casual' burger and fries joint be a big hit with investors too? It looks like Wall Street has worked up its appetite for the Shake Shack IPO. More

The Wednesday announcement that Don Thompson will retire as CEO of McDonald's leaves just two black CEOs in the elite Dow 30. More

Google reported a quarterly profit on Thursday that rose from a year ago, but the company fell short of Wall Street's expectations. More

On demand delivery startup WunWun is expecting its order volume to double by the time they close up shop on Monday. All thanks to a blizzard. More

The IRS said it has carried out thousands of audits of offshore schemes and pursued criminal charges that have resulted in "billions of dollars in criminal fines and restitutions." And it won't stop there. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2015 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2015. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2015 and/or its affiliates.