Consumer prices unchanged in July, Labor Dept. says

By Martin Crutsinger
AP Economics Writer

WASHINGTON (AP) - U.S. consumer prices were unchanged in July as a big drop in gasoline and other energy prices kept inflation under control.

The Labor Department said Tuesday the flat reading for overall inflation followed a 0.2 percent gain in June. Energy prices fell by the largest amount in five months. Core inflation, which excludes volatile energy and food, edged up 0.1 percent in July, the smallest increase in four months.

The Federal Reserve has an inflation target of 2 percent annual increases. While core inflation has risen 2.2 percent over the past 12 months, overall inflation is still well below the Fed's target, rising just 0.8 percent in the past 12 months. The Fed has left interest rates unchanged after a single rate hike last December.

At its last meeting, the Fed noted that risks to the economic outlook had diminished, opening the possibility of a rate hike later this year. Federal Reserve Chair Janet Yellen delivers a major policy speech at a conference in Jackson Hole, Wyoming, next week and economists are hoping she will provide clues about the Fed's intentions.

Some analysts believe it could occur at the Fed's next meeting in September although many believe the central bank will wait until December before raising rates again, given modest economic growth and low inflation.

Sal Guatieri, senior economist at BMO Capital Markets, said the new report showing a slowdown in inflation pressures could make Fed officials "a little more uncertain" about how long it will take to reach the Fed's 2 percent inflation target.

Inflation has been low at both the consumer and producer price levels. The government reported last week that producer prices fell by 0.4 percent in July, the biggest drop since last September.

In the report on consumer prices, energy costs dropped 1.6 percent, the first decline since a 6 percent slide in February. Gasoline costs were down 4.7 percent last month. Food costs were float in July following declines in June and May.

Outside of food and energy, new car prices posted a small 0.2 percent rise while housing costs and medical care also increased. Offsetting those gains were price declines for airline fares, used cars and trucks and recreation.

Published: Thu, Aug 18, 2016