WASHINGTON, Sept 16: New data on Thursday showed US inflation in check, with consumer prices up a modest 0.1 per cent in August, giving the Federal Reserve room go slow on boosting interest rates.

The core rate of the consumer price index (CPI), excluding food and energy, also rose 0.1 per cent. Private economists had been predicting a 0.2 per cent rise in both figures. The CPI, the most widely used gauge of inflation at the consumer level, has risen 0.1 per cent in each of the past three months.

Last week, the government said US producer prices dipped 0.1 per cent in August, with the core producer price index - excluding food and energy goods - also down 0.1 per cent.

Over the first eight months of the year, consumer prices were up 3.7 per cent, but just 2.2 per cent when the volatile food and energy components are removed. Over the past 12 months, the CPI index is up 2.7 per cent, with the core inflation rate at 1.7 per cent.

"This is good news ... I think the market will treat these as favourable readings and the inflation scare seems to be fading," said Dick Rippe, economist at Wachovia Securities.

"The underlying data show little reason to worry about a re-acceleration of prices in the near future," said the economic team at Lehman Brothers in a note to clients. The report also offers some vindication for Federal Reserve chairman Alan Green span and his colleagues, who have been arguing that price increases earlier this year were transitory.

"Higher oil and raw materials prices are not being passed through to other goods and services at a significant rate, allowing the Fed to continue its course of measured interest rate increases," said Sung Won Sohn at Wells Fargo Bank.

The central bank, which is aiming to bring interest rates back to a more normal level after a period of unusually low rates to stimulate a sluggish economy, is expected to boost its key rate by a quarter-point on September 21.

The latest report showed energy costs fell 0.3 per cent in August after dropping 1.9 per cent in July. Within the energy sector, gasoline prices fell 1.4 per cent. Fuel oil costs rose 5.2 per cent, the smallest increase since January. Food prices rose 0.1 per cent in August after rising 0.3 per cent in the previous month. -AFP