Consumer prices take first fall in 16 months

Consumer prices fell in August for the first time in 16 months as gasoline prices tumbled.

The consumer price index dropped 0.2% after rising 0.1% in June, the Labor Department said Wednesday. Economists had expected no change in overall prices.

In the past 12 months, prices have risen 1.7%.

Excluding volatile food and energy costs, price were unchanged, the first time so-called core prices have not increased since October 2010. Economists had expect a 0.2% increase. Core prices are up 1.7% the past year.

Last month, gas prices fell 4.1% while airline fares were down 4.7%. Prices for household furnishings, apparel, used cars and recreation all declined.

Food prices rose moderately, with meat, poultry, fish and eggs climbing 1.5%. Beef and veal costs jumped 4.2%, the biggest increase since November 2003. Over the past year, food prices are up 2.7% in part because of droughts in the West. Housing costs also increased in August.

Inflation overall has moderated recently after rising sharply earlier this year on higher food and energy costs. That has eased speculation that the Federal Reserve might have to raise interest rates sooner than the mid-2015 timetable that financial markets anticipate.

The Fed concludes a two-day meeting Wednesday and could provide further clues on when near zero interest rates will begin to rise.