Slower growth helps put a cap on prices of goods and services

Washington: Americans paid less for goods and services in August, manufacturing slumped and homebuilding sank deeper into a recession, signalling slower growth is taming inflation, economists said before reports this week.

Consumer prices probably fell 0.1 per cent last month, the first drop since October 2005, according to the median estimate in a Bloomberg News survey. Builders broke ground on the fewest houses in 17 years and industrial production fell, other reports are also projected to show.

Some companies are cutting prices to revive demand as mounting job losses and the collapse in credit and home values cause consumers to retrench.

At their meeting this week, Federal Reserve policy makers may signal that the benchmark interest rate will remain at two per cent in coming months as the threat of inflation recedes and the economy weakens.

"Slowing growth helps put a cap on commodity and energy prices, so price pressures are likely to decelerate," said Maxwell Clarke, chief US economist at IDEAGlobal in New York. "It allows the Fed to put fears of inflation on the back burner. Growth will become the greater concern."

Crucial report

The Labour Department's report on consumer prices is due tomorrow. The retreat in energy prices and discounts by automakers and retailers to clear out unwanted stockpiles probably restrained the cost of living last month, economists said.

The average price of gasoline fell 7.8 per cent last month compared with July. Core prices, which exclude food and energy, rose 0.2 per cent last month after a 0.3 per cent gain, according to the survey median.

Sales at US retailers dropped in August for a second straight month and July inventories at American businesses increased the most in four years, Commerce Department reports showed last week.

J.C. Penney and American Eagle Outfitters promoted discounts on clothes to attract more shoppers during August to counter what may be the worst back-to-school season in seven years.

General Motors offered all customers the same prices paid by employees, helping boost sales in the second half of the month. GM this month said it will extend the incentive through September and has offered 72-month, no-interest financing on some vehicles since late June.

The worst housing recession in a quarter-century is also weighing on consumers. New-home starts in August dropped to a 950,000 annual pace, the lowest level since March 1991, the Commerce Department is forecast to report September 17.

Builders scaled back to offset a record number of foreclosures that added to an inventory glut, economists said. Starts have fallen 30 per cent in the past year.