updated 10/15/2010 11:50:47 AM ET 2010-10-15T15:50:47

Consumer prices, excluding energy, were flat in September for the second straight month, a sign that cost-conscious consumers are making it difficult for businesses to charge more.

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The Labor Department said Friday that the Consumer Price Index edged up 0.1 percent in September, after a 0.3 percent rise in August. But outside food and energy, core consumer prices were unchanged. And in the past 12 months, core prices rose by only 0.8 percent, the smallest yearly gain in more than 49 years.

Overall consumer prices rose by 1.1 percent in the past year, the department said.

That's below the Federal Reserve's preferred range of 1.5 to 2 percent, and heightened expectations among economists that the central bank will take additional steps next month to spur economic growth.

In a Friday speech, Fed Chairman Ben Bernanke said the central bank is prepared to buy Treasury bonds but is still wrestling with how big the program should be. The goal of the bond purchases would be to lower interest rates and encourage more borrowing and spending.

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Bernanke also said that with the economy still weak, "the risk of deflation is higher than desirable." Deflation is a widespread drop in prices, wages and the values of stocks and homes.

Story: Bernanke signals Fed poised to further boost economy

The consumer price index figures show that deflation isn't far off. But most economists don't expect deflation to take hold. Food prices are likely to keep rising as U.S. crop harvests have come in below expectations. Food prices rose by 0.3 percent last month, the most in almost two years. And modest economic growth should prevent outright price declines, some economists said.

Retail sales, for example, increased by 0.6 percent in September, the Commerce Department said Friday, the third straight increase.

"With the dollar falling and commodities surging, we do not expect disinflation to continue for much longer," John Ryding, an economist at RDQ Economics, wrote in a note to clients.

Overall housing costs, which make up more than 40 percent of the index, fell by 0.1 percent last month. That includes hotel prices, which declined 0.2 percent.

Clothing prices fell by 0.6 percent in September, the second straight drop, while used car prices fell 0.7 percent and recreation dipped 0.3 percent.

"Businesses' pricing power remains nonexistent across the broader economy," said Neil Dutta, an economist at Bank of America Merrill Lynch.

Consumers are holding back on spending, with unemployment high and wages stagnant. That makes it difficult for retailers to pass on any price increases.

The modest price increases mean that 58 million Social Security recipients won't receive any cost-of-living increases in their benefits next year, for the second straight year. It will be only the second year without an increase since automatic adjustments for inflation were adopted in 1975. Social Security is the U.S. public pension system.

Food and energy prices rose. Gas prices increased by 0.7 percent, while the cost of meat, cereals and baked goods, and dairy products also moved up.

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