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In US, consumer prices rise, trade gap narrows

US consumer prices rose 0.3 percent in August, keeping the 12-month change close to a three-year low and suggesting inflation poses little threat to the economy.

The increase in the Labor Department's consumer price index, the most widely followed inflation measure, reflected higher costs for clothing, tobacco and gasoline. Food and auto prices declined.

The index rose 0.1 percent in both June and July.

Consumer prices were 1.8 percent higher in August than in the same month last year. That's close to the 1.6 percent year-over- year increase last year, the tamest since 1998. A sluggish economic recovery is prompting companies such as Southwest Airlines Co and Kroger Co to reduce prices to drum up demand.

"Competition in all of our product lines is tough in this kind of environment," said Daniel Carp, CEO of Eastman Kodak Co.

Lack of pricing power has given Federal Reserve policy makers room to hold their benchmark interest rate at a 41-year low to ensure the recovery is sustained. Growth may be picking up. A narrower trade deficit in July probably helped boost third-quarter gross domestic product, economists said.

The US trade deficit shrank in July, reflecting a decline in imports and increased exports, the Commerce Department said.

The US$34.6 billion trade gap in goods and services followed a US$36.8 billion deficit in June. The threat of a strike by dockworkers may have prompted companies to accelerate imports from April through June.
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