Monthly inflation reading near zero

WASHINGTON — Consumer prices posted a small rise in August, but aside from a big jump in volatile gasoline prices, inflation was essentially flat.

Consumer prices edged up 0.3 percent in August, matching the July increase, the Labor Department said Friday. Core inflation, which excludes food and energy, showed no increase in August.

In the Seattle metro area, consumer prices rose 0.7 percent from June to August, driven mainly by higher prices for housing and gasoline. Core inflation rose 0.5 percent over the two-month period. (Local consumer prices are reported only every two months.)

The 2007-2009 recession and the weak recovery since have banished inflation as an immediate threat. Sluggish demand is preventing most businesses from raising prices, and high unemployment is keeping a lid on wage pressures.

Since August 2009, prices have risen a modest 1.1 percent nationally and 0.2 percent in the Seattle area. Core inflation is up 0.9 percent nationally, matching the lowest 12-month gain in 44 years, while prices declined 0.3 percent in the Seattle area.

Based on the inflation numbers released Friday, Washington state's minimum wage likely will not increase, state officials said.

The state's minimum wage is tied to inflation, as dictated by a 1998 voter-approved initiative.

Elaine Fischer, a spokeswoman for the state Department of Labor and Industries, said Thursday the state won't make an official determination on the minimum wage until Sept. 30, when the federal government releases its final numbers.

Washington state's minimum wage is $8.55, the highest in the nation. The federal minimum wage is $7.25. Last year was the first year the state wage didn't go up since Initiative 688 passed, because consumer prices fell. Inflation is growing again, but at a slower rate.

"It's an unusual situation that's never occurred before," Fischer said.

The absence of inflationary pressures has given the Federal Reserve room to keep interest rates at record lows for nearly two years in an effort to jump-start economic activity. Fed policymakers meet again Tuesday and are expected to keep their target for the federal funds rate at zero to 0.25 percent, where it has been since December 2008.

The August and July increases nationally followed three straight months of price declines. Those declines had raised concerns the country could be facing a threat of deflation, something that has not been a problem in the United States since the Great Depression of the 1930s.

With overall prices rising again and the economy posting signs of emerging from its summer swoon, worries about deflation have decreased. But some economists say a mild bout of deflation is still a possibility if economic growth remains weak and unemployment stays high.

If that happens, "inflation will keep falling, and eventually deflation, albeit probably a mild Japan-style one, will set in," said Paul Ashworth, senior U.S. economist for Capital Economics.

From June to August, energy prices in the Seattle area rose 2.7 percent, driven by a 4.3 percent increase in gasoline prices. Since August 2009, energy prices are up 6.8 percent, as gasoline and electricity prices shot up 8 percent and 9.8 percent, respectively.

Food and housing costs both rose 0.7 percent over the past two months. In the past 12 months, housing costs fell 2.7 percent.

The federal figures define the Seattle area as King, Kitsap, Pierce, Snohomish and Thurston counties.

Seattle Times staff reporter Sanjay Bhatt contributed to

this report.