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Consumer prices drop
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September 15, 2000: 11:27 a.m. ET
CPI figure is first drop in 14 years, but includes volatile food, energy prices
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NEW YORK (CNNfn) - Consumer prices fell in August, the first decline in 14 years, the government reported Friday, although the results were impacted by a temporary drop in energy prices that have since rebounded.
The Labor Department's Consumer Price Index fell 0.1 percent. Analysts surveyed by Briefing.com had forecast a 0.2 percent gain, the same as the July increase.
Energy prices were off 2.9 percent overall from July, as gasoline pump prices were off 6 percent when the data was collected early in August. The drop caught analysts by surprise, although prices excluding energy and food were in line with expectations.
 The so-called "core" CPI, which excludes often-volatile food and energy prices, posted a 0.2 percent increase, which matched the Briefing.com forecast as well as the gain posted in July.
Normally, a declining fear of inflation can bring a rise in U.S. stock and bond prices, as investors hope such reports will discourage the Federal Reserve from hiking interest rates. But the U.S. stock markets opened mostly lower Friday, even though futures trading before the report suggested a higher open for stocks. The core CPI, which met forecasts, is the key number, particularly in this case, according to analysts. And after Thursday's producer price index, a measure of wholesale prices, came in below expectations, there were some hopes that the core CPI would have been below forecasts.
"This is a little bit like getting a bigger-than-expected package in a much prettier wrapping and huge bow, but you open it up and it's exactly what you thought you were going to get," Robert Brusca, chief economist with Ecobest Consulting, told CNNfn's Before Hours program Friday.
"The headline for this report is better than expected, but the headline isn't important. We knew we're going to have a break in energy prices this month. Next month [September's report] we know they're going up. The core is what's important." (405KB WAV) (405KB AIFF)
This overall CPI number won't have any impact on Fed decision-making at its October meeting, said David Orr, chief economist with First Union, as it looks at the core CPI. And while that figure has stayed at a 0.2 percent monthly gain in seven of the eight monthly reports so far this year, including the last five months in a row, that would have been somewhat higher without unusual drops in tobacco and tuition prices, Orr said.
"Importantly, on a year-over-year basis, the core CPI continued to inch higher," he said. The year-over-year core CPI gain was 2.5 percent in August, compared with 2.4 percent in July. Orr said it's unlikely the Fed will drop its stated concerns about future inflation risks, even if it continues to leave rates unchanged.
Other reports on factory output, inventories
A separate report released by the Federal Reserve Friday showed industrial output gained 0.3 percent in August, beating the Briefing.com forecast of no change, but just below the 0.4 percent rise in July.
Capacity utilization of U.S. factories and mines was 82.3 percent, just above the 82 percent forecast and the same as the July rate.
In a third report Friday, the Commerce Department said business inventories in July gained 0.2 percent to a month-end level of $1.2 billion. That's the slowest rate of growth in 15 months and well below the 0.5 percent rise forecast by Briefing.com's survey, or the 0.9 percent rise posted in June.
Finally, The University of Michigan's preliminary consumer sentiment index for September rose to 108.8, a figure much higher than expected and a rise from a final August reading of 107.3, market sources told Reuters Friday. The report is directly released to subscribers only, rather than to news organizations and the general public.
A survey by Briefing.com forecast that the index would come in at 107.0 for the month. 
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