THE FED GETS A LAST DATA POINT, AND IT ISN´T GOOD / THE WALL STREET JOURNAL

The Fed Gets a Last Data Point, and It Isn’t Good

Falling gasoline costs could push overall prices negative

By Justin Lahart
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 The Federal Reserve’s issue with inflation may get worse as gasoline prices fall. Photo: Andrew Harrer/Bloomberg News


Federal Reserve policy makers’ big problem with inflation is only going to get worse.

The Labor Department on Wednesday reported that its consumer-price index fell by 0.1% in August from July, putting it just 0.2% above its year-earlier level. Much of that weakness was gasoline-related, but not all of it: Core prices, which exclude food and energy, rose by a scant 0.1% from July, putting them up just 1.8% on the year.

The Fed focuses on core prices, although it uses a separate measure—under that core inflation has been growing even more slowly. But the headline CPI’s meager gain from last year isn’t making the central bank’s decision on interest rates at its two-day meeting ending Thursday any easier.

                     

Headline inflation looks bound to go even lower. Regular gasoline averaged $2.38 a gallon on Monday, according to the Energy Department. That was 30% below its September 2014 average of $3.41. Back of the envelop, if all the other items in the index rise as much on the year in September as they did last month, the CPI will be down 0.1% from a year earlier.

If anything, with falling import and commodity prices flowing into consumer prices, the CPI may be further in negative territory. So if the Fed decides to wait until its October or December meetings to raise rates, it may be doing so in the context of headline CPI deflation.