BUSINESS
09/16/2014 09:02 EDT | Updated 06/16/2017 00:52 EDT

Lower gas, food costs keep US producer prices unchanged in August as inflation remains mild.

WASHINGTON - A measure of prices that producers receive for their goods and services was unchanged in August, the latest sign that inflation is in check.

Wholesale gas prices fell 1.4 per cent last month and food costs dropped 0.5 per cent, the Labor Department said Tuesday. Those declines offset higher prices for transportation and shipping services.

The producer price index rose just 1.8 per cent last month from a year earlier. The index measures price changes before they reach the consumer.

Economists had expected that the producer price index had risen 0.1 per cent in August from the previous month, according to a survey by FactSet.

"The figures provide further evidence that price pressures have eased a bit in recent months," Paul Dales, an economist at Capital Economics, said.

Excluding food, energy and retailers' and wholesalers' profit margins, core producer prices rose 0.2 per cent and are up 1.8 per cent in the past year.

Higher food and gas costs had pushed up producer prices earlier this year, briefly raising concerns that inflation might accelerate. But gas and food prices have since moderated, slowing wholesale inflation.

The drop in wholesale gas prices has led to lower costs for consumers at the pump, leaving them more money to spend on other goods. The average price for a gallon of gas fell to $3.39 Monday, eight cents cheaper than a month ago.

Food prices, meanwhile, fell in May and June before rising just 0.4 per cent in July. That's much lower than the big gains recorded earlier this year, when food prices soared 2.3 per cent in April and 1.3 per cent in March. They were driven higher by a drought in California and brutal winter storms and freezing temperatures in the Midwest.

The Fed targets inflation at about 2 per cent as a guard against deflation, which could drag down wages and spark another recession. At the same time, the Fed wants to avert excessive inflation and protect consumers and the purchasing power of the dollar.

Americans' paychecks, meanwhile, are barely increasing, which has limited consumers' willingness and ability to spend. That has made it harder for businesses to raise prices.

Low inflation has enabled the Fed to pursue extraordinary measures to boost the economy. It has begun to unwind some of those measures, cutting a monthly bond-buying program to $25 billion, from $85 billion last year.

Those bond purchases had ensured low interest rates that encouraged investors to pour money into the economy