US consumer prices unexpectedly fell in August as gasoline prices resumed their decline and a strong dollar curbed the cost of other goods, pointing to tame inflation that complicates the Federal Reserve's decision whether to hike interest rates.
The Labor Department said on Wednesday its Consumer Price Index (CPI) slipped 0.1 percent, the first drop since January, after edging up 0.1 percent in July. In the 12 months through August, the CPI rose 0.2 percent after a similar gain in July.
Signs of a disinflationary trend reasserting itself are in stark contrast with a fairly healthy economy and a rapidly tightening labor market, and highlight the dilemma Fed officials face as they contemplate raising interest rates for the first time in nearly a decade.
While solid data on consumer spending, housing and employment have been supportive of a rate hike, the case for higher borrowing costs has been undermined by recent global financial markets turmoil.
US financial markets were pricing a 29 percent probability of a lift-off in the Fed's benchmark overnight interest rate on Thursday, little changed from before the data's release.
A Reuters survey of 80 economists showed 45 expected the US central bank to keep its short-term interest rate near zero.
Stocks on Wall Street were trading higher in the wake of the soft CPI data. Prices for US Treasuries rose marginally, while the dollar fell against a basket of currencies.
Tightening labor market conditions, marked by record high job openings and a 5.1 percent unemployment rate, have so far not spurred faster wage growth.
Sluggish wage gains and a strong dollar have contributed to keeping inflation below the Fed's 2 percent target. Economists had forecast the CPI unchanged in August and rising 0.2 percent from a year ago.
The dollar has gained 17.1 percent against the currencies of the United States' main trading partners since June 2014.