Commodity bubble deflation eases US inflation index

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WASHINGTON, September 16, 2008 (AFP) – US consumer prices dropped 0.1 percent in August as falling energy costs eased inflation pressures, government data showed Tuesday.

The softer inflation came as welcome news for an economy battered by a credit crunch and real estate woes, analysts said. Some said it could make it easier for the Federal Reserve to cut interest rates.

“With inflation making its way out of the danger zone, the Fed can totally focus on instilling calm in financial markets,” said Jennifer Lee at BMO Capital Markets as a Fed policy meeting got underway.

The drop in the consumer price (CPI) index followed a sharp 0.8 percent jump in July, according to the Labor Department report.

The so-called core CPI index, which excludes volatile food and energy costs, rose 0.2 percent in August after a 0.3 percent increase in July.

Both the headline and core CPI figures were in line with forecasts and indicate a moderation in inflationary pressures after sharp commodity-driven increases earlier in the year.

Over the past 12 months however, consumer prices have risen 5.4 percent and core prices by 2.5 percent.

The August drop was led b