U.S. consumer prices ease on cheaper energy

The August decline in the Consumer Price Index was in line with forecasts by Wall Street economists surveyed by Reuters and followed a 0.8 percent July jump, a Labor Department report showed.

The U.S. dollar was little changed and U.S. Treasury debt prices held steady at higher levels as investors weighed whether lower consumer prices created room for a cut in official interest rates as early as Tuesday.

"If the Fed is thinking of cutting interest rates this afternoon, this gives them a little more freedom to do that," said Robert McIntosh, chief economist for Eaton Vance Corp in Boston, adding, "I don't think it will do any good."

Excluding volatile food and energy items, so-called core CPI rose 0.2 percent, down from a 0.3 percent July rise. That also matched forecasts.

On a year-over-year basis, overall consumer prices rose 5.4 percent -- a moderation from the 5.6 percent year-over-year
rise in July --  and core prices were up 2.5 percent, the same as in July.   Energy costs tumbled 3.1 percent in August, the biggest drop since October 2006, after rising 4 percent in July.
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Housing costs were down 0.1 percent last month, the first decline since early 2003, after climbing 0.6 percent in July. Transportation costs declined 1.5 percent after a 1.7 percent rise in July as gasoline prices dropped by 4.2 percent.

The favorable news on consumer prices was issued just as policy-setting members of the Federal Open Market Committee gathered to consider interest-rate strategy amid a severe crisis in credit markets that has rattled investors around the world.

Futures markets immediately pushed up chances of a cut in the federal funds rate, though analysts thought it was far from assured that the U.S. central bank will do so at this stage.