Inflation News Good & Bad

Consumer prices rose just 0.1 percent in August, a sign that there's little inflationary pressure in the economy. While that's good news for consumers' wallets, it's one of several recent reports that indicated the economy is generating little heat.

It was the economic lull experienced in the late spring and early summer, economists said, that made it harder for some companies to raise prices, thus improving the inflation climate.

Overall consumer confidence was unchanged last week, according to the latest ABC News/Money Magazine poll released Tuesday. The poll's consumer comfort index was steady at negative-7 points in the week ended Sept. 12, after a four-point gain a week earlier. The poll has a margin of error of plus or minus three percentage points.

Industrial activity edged up by 0.1 percent in August as declines in utility and mining output tempered a gain in factory production. The small rise in industrial activity reported by the Federal Reserve Wednesday followed a sizable 0.6 percent gain in July.

Although economists were forecasting a 0.5 percent gain for August, some analysts said the report wasn't as weak as the overall number seemed to suggest. Those analysts took comfort in the fact that manufacturing output grew.

"The report is stronger than appears on the surface. Unlike other parts of the economy, manufacturing activity moved up so I would say in general this is a pretty solid report," said Stuart Hoffman, chief economist at PNC Financial Services Group. "Utility output was down probably because of the relatively cool summer we had."

Separately, new claims filed for unemployment benefits rose last week by a seasonally adjusted 16,000 to 333,000, the department said in a second report. Neither Hurricane Charley nor Frances affected the increase, a Labor Department analyst said. The 333,000 level of claims was still better than the 340,000 to 346,000 that some analysts were expecting.

The economy hit a bit of a rough patch in the late spring and summer, but now appears to be gaining ground, Federal Reserve Chairman Alan Greenspan says.

The latest batch of economic news comes with Election Day less than two months away, on Nov. 2. President Bush and Democratic rival Sen. John Kerry have markedly different views about how the economy and the nation's job market are doing.

Mr. Bush says the best way to strengthen economic activity and spur more job creation is to make his tax cuts permanent. Kerry says the president's tax cuts have mainly benefited the wealthy, haven't produced significant job growth and have plunged the government's balance sheets deeper into the red.

The over-the-month-increase in the Consumer Price Index, the government's most closely watched inflation gauge, came after prices dipped by 0.1 percent in July, the Labor Department reported Thursday.

Excluding energy and food prices, which can swing widely from month to month, "core" prices also inched up by 0.1 percent in August for the third month in a row. That suggested that most other prices are remaining well behaved, analysts say.

Cheaper prices for clothes, cars and gasoline helped to temper price increases for medical care, some food items and some energy goods.

The inflation picture was slightly better than some analysts were expecting. They were forecasting a 0.2 percent rise in both the overall CPI and for core prices.

"I don't see any significant danger that inflation is going to run away from us," said Anthony Chan, senior economist at JP Morgan Fleming Asset Management.

Greenspan says widespread, unwanted inflation isn't currently a danger to the economy despite high oil prices, which have dampened economic activity.

"Despite the rise in oil prices through mid-August, inflation and inflation expectations have eased in recent months," Greenspan said last week. Crude prices climbed to record highs earlier this summer, topping $48 a barrel, but have moderated in recent weeks.

In August, energy prices dipped 0.3 percent, after a 1.9 percent decline in July. For both months, declining gasoline prices eclipsed higher costs for other energy products.

Food prices, meanwhile, edged up 0.1 percent in August, down from a 0.3 percent advance.

The Fed, however, is widely expected to boost short-term interest rates for a third time this year. That would raise a key rate to 1.75 percent, from 1.50 percent. Analysts say that rates, still quite low by historical standards, should go up because the economy no longer needs their bracing tonic.

At the same time, rising interests rates are unlikely to spur new hiring. The economy still has fewer jobs than before the 2001 recession started.

However, the pace of layoffs has slowed over the past year. A year ago, new filings were at 401,000, a level associated with a weak labor market, compared with the current 333,000. And the nation's payrolls picked up in August, with the economy adding 144,000 positions, the most since May.