By Vicki Needham - 08/13/10 03:03 PM EDT
Behind several months of falling prices and the economic recovery slowing, Federal Reserve officials have considered the possibility that the economy could slip into a period where prices across all sectors, including goods and real estate experience a long-term drop. That last time that happened was during the Great Depression.
Prices have increased 1.2 percent over the past 12 months with July's pace at 1.1 percent, slightly below the forecast.
The core rate rose 0.9 percent since July 2009, the smallest increase in 44 years and below the Federal Reserve's inflation target.
With inflation under control, the Fed is holding its key interest rate near zero and expects to maintain that policy through at least the end of the year as a way to help the economic recovery. Once the economy begins a broader improvement, the Fed will likely raise rates to keep prices in check.
A separate report Friday form the Commerce Department showed that retail sales rose less than expected in July, as Americans continue to hold back their spending and save more.
Sales increased 0.4 percent, pushed up by gas and auto purchases. But outside those categories, demand decreased 0.1 percent.