US consumer prices post first decline in 16 months

WASHINGTON, United States - U.S. consumer prices fell for the first time in nearly 1-1/2 years in August and underlying inflation pressures were muted, which could lessen the urgency for the Federal Reserve to raise interest rates.

The Labor Department said on Wednesday its Consumer Price Index declined 0.2 percent last month as a broad decline in energy prices offset increases in food and shelter costs.

It was the first drop since April last year and followed a 0.1 percent gain in July.

Economists polled by Reuters had forecast consumer prices being flat in August. The CPI increased 1.7 percent in the 12 months through August after rising 2.0 percent in July.

Inflation has cooled somewhat after accelerating in the second quarter. Stripping out food and energy prices, the so-called core CPI was unchanged last month for the first time since October 2010 after nudging up 0.1 percent in July.

In the 12 months through August, the core CPI rose 1.7 percent, slowing down from July's 1.9 percent increase.

The Fed targets 2 percent inflation and it tracks an index that is running even lower than the CPI.

The CPI report was released ahead of the conclusion of the U.S. central bank's two-day policy meeting. The Fed is scheduled to release its policy statement at 2:00 p.m. (1800 GMT), which will be watched for signals on the timing of the first interest rate increase.

Energy prices fell for a second straight month, with gasoline prices plunging 4.1 percent after declining 0.3 percent the prior month.

Food prices rose 0.2 percent after advancing 0.4 percent in July as the effects of a drought in California linger.

The core CPI was damped by a second straight month of sharp declines in airline fares. Falling apparel and used car prices also weighed. Recreation prices recorded their largest drop since December 2009, while household furnishings declined.

Rents increased 0.2 percent last month after rising 0.3 percent in July.