Economic Watch: Inflation Not a Threat to Growth

A new report shows inflation does not pose any threat to the slowly improving United State’s economy.

The U.S. Labor Department says its Consumer Price Index for August increased 0.1% from the month before while it is up 1.5% over the past year, below the Federal Reserve’s target of 2%.

“Core prices,” which exclude the volatile food and energy sectors, increased 0.1% in August from July and is up 1.8% over the past year.

Energy prices fell 0.3% in August, the third monthly decline in the last six months. Housing costs rose 0.1% in August, while transportation prices fell 0.2% and the education and communication prices fell 0.1%, thanks to a 0.5% drop in personal computer costs.

“[This is] another benign inflation report continuing the downward trend in place since late 2011,” said Lindsey Piegza, Sterne Agee chief economist. “From the Fed’s standpoint, with price levels well below the 2% target, inflationary concerns are taking a backseat to encouraging full employment. 

She said, “At this stage, with a pool of available labor at 18 million and 13 million Americans actively seeking employment there is clearly slack in the labor market stemming fears of igniting a wage-price spiral.”

The central bank has started its two-day policy meeting to talk about whether to rein in the Federal Reserve’s $85-billion-a-month bond-buying program, to drive down long-term interest rates and spur stronger spending, hiring and investment. Fed Chairman Ben Bernanke earlier said the central bank would scale back its program as the economy gains steam.