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Consumer prices up 0.3%
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September 15, 1999: 10:56 a.m. ET
August inflation index matches targets; energy price rise fuels 2/3 of the gain
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NEW YORK (CNNfn) - Consumer prices rose a slight 0.3 percent last month, the government said Wednesday, in line with economists' forecasts and easing concerns the Federal Reserve will lift short-term interest rates at its next policy meeting.
The August increase in the consumer price index, the Fed's main inflation gauge, matched the rate in July and the expectations of economists. Climbing energy prices spurred two-thirds of the gain, while airfares, cigarette prices and apparel costs all fell.
Excluding volatile food and energy prices, the "core" CPI rose 0.1 percent, a little below forecasts and less than the 0.2 percent rise that was posted in July.
What was good for consumer pocketbooks was a plus for stock and bond markets as well, as traders relished the prospect that the cost of borrowing set by the Fed may not be moving up anytime soon.
The 30-year Treasury bond rose 19/32, with the yield falling to 6.08 percent from 6.12 percent on Tuesday. Wall Street was also delighted, with the Dow Jones industrials up 88.34 points to 10,998.67 shortly after the open of trading.
The CPI data come a day after a stronger-than-expected retail sales report sparked concern about a pickup in inflation that could force the Fed to raise rates again.
The central bank has raised short-term interest rates twice this summer in a bid to slow economic growth and head off inflation. While higher rates can slow growth, they also raise borrowing costs and can thus hit corporate earnings and stock prices.
Economists say the report is likely to continue a guessing game about whether another rate hike is likely when the Fed's policy committee meets Oct. 5.
"Had this number been very high, the markets would have been quite confident the Fed would raise rates," Charles Lieberman, chief economist at First Institutional Securities, told CNNfn. "The real question is whether they are going to pull the trigger on interest rates again, and my answer is no."
But Lieberman said he expects another rate increase by the end of the year. Another economist sounded more confident about the Fed's tack, however.
"The numbers are very favorable in terms of indicating that inflationary pressures are very subdued," said Marilyn Schaja, a money market economist at Donaldson Lufkin & Jenrette, in an interview with Reuters. "It takes away any last of inclination of that Oct. 5 Fed rate hike."
Fed Chairman Alan Greenspan has been vigilant about inflation, particularly in the tight labor market, which could force employers to pay higher wages to keep or attract workers.
A recently depressed market for oil and gasoline has been on a sharp upswing this summer. Energy costs rose 2.3 percent, with gas prices climbing 5.6 percent.
The government said the top accelerator of prices this year have been energy costs, rising at a yearly clip of 15.4 percent compared to a decline of 8.8 percent last year.
But the rebound in energy prices has been offset elsewhere. Food prices inched up just 0.2 percent, tobacco product prices fell 1.3 percent and apparel costs declined 0.3 percent. Airfares fell 2.7 percent after rising 6.5 percent in July.
The dawn of the Digital Age has brought with it gains in productivity and competition in the high-tech market. Prices for computers and computer-related components fell 3.8 percent in August and are down a stunning 28.4 percent from a year ago.
The CPI, the nation's primary gauge of inflation, is up 2.6 percent on an annual basis so far in 1999. That's up from 1.6 percent for all of 1998.
Separately Wednesday, the Commerce Department reported business inventories rose a smaller-than-expected 0.3 percent in July, the same rate as in June. Economists expected a 0.6 percent rise. 
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