Core Inflation Rate at Lowest Level in 33 Years

Americans got another shock at the gasoline pumps last month, but elsewhere consumer prices remained subdued. Falling costs for clothing, computers, airline tickets and new cars pushed the core inflation rate to the lowest level in 33 years, the government reported.

The Labor Department said Wednesday that its consumer price index was up 0.3% overall in August, but outside of the volatile food and energy areas, prices rose just 0.1%. Over the last year, this so-called core rate of inflation has risen just 1.9%, the smallest increase since a 1.8% rise in core prices in the 12 months ending in April 1966.

Even with the good news in the underlying rate of inflation, many economists said they still expected the Federal Reserve will raise interest rates for a third time this year at its meeting Oct. 5.

“Inflation remains very mild, but the Fed is looking at indicators showing that the economy is growing about twice as fast in the current quarter as it did in the spring,” said Paul Taylor, chief economist at the National Automobile Dealers Assn.

Analysts said reports showing unemployment returned to a 29-year low of 4.2% in August while retail sales shot up at their fastest clip in six months will keep Fed officials worried about inflation.

The Fed already has nudged short-term rates up by one-half percentage point in two moves this summer, trying to slow the economy enough to keep inflation at bay.

So far this year, inflation at the consumer level is rising at an annual rate of 2.6%. Though this is up from the 1.6% rise in prices for all of 1998, the best showing in 12 years, all of the gain has come from a rebound in energy prices, which fell last year because of global oversupply.

The government said that two-thirds of the 0.3% CPI increase last month came from the 2.7% monthly jump in energy prices, which came on the heels of a 2.1% July spurt in energy costs.

Gasoline prices surged by 5.6%, continuing a trend that has pushed pump prices up 25.1% this year.

Food costs last month edged up a slight 0.2%, a modest advance given that drought conditions are cutting into production in many parts of the country. Fruit prices fell in August even though citrus prices continued an upward climb that has pushed their cost up by 60.8% this year.