The U.S. Consumer Price Index came in more or less as expected in August, clearing the way for future rate cuts.

Headline CPI rose 0.1%, with core CPI up 0.2%. “We think a close reading of the details is encouraging as core goods prices actually registered a 0.4% price decline,” says BMO Nesbitt Burns.

“Apparel prices were slashed, car and truck costs fell, and the tech sector registered large price declines. The economic slowdown is hitting prices first and hardest in the goods sectors. We expect more downward pressure in these areas in coming months.”

“The result provides further evidence that inflation remains within the Fed’s comfort zone, and will not keep the central bank from easing further as it seeks to rebuild confidence and get growth back on track,” says CIBC World Markets.

“Today’s report, following a set of good numbers in July, gives the Fed a green light to lower rates even further as it seeks to repair the damage inflicted on sentiment and the economy by early September’s heinous actions in New York and Washington.”

TD Bank economists agree, noting, “Today’s report on consumer prices for August confirms that inflation worries can easily be left on the backburner for at least the next few months while the Federal Reserve focuses its attention on reviving the struggling U.S. economy and restoring financial markets to health.”

TD says that despite the Fed’s move to cut rates 50 basis points yesterday, the risk of slower economic demand remains a greater near-term risk than rising inflation, “hence at least two more 25 basis point rate cuts at each of the next two FOMC meetings is likely in the cards”.

“We regard the drop in goods prices as a leading indicator of lower inflation in the CPI during the months ahead. All the backup data on inflation point toward a reduced inflation rate, including the PPI and capacity utilization readings for August. The Fed and other central banks will not have to agonize about inflation rising, allowing them to continue the easing process as far as is necessary,” notes BMO Nesbitt Burns.