Costlier energy drives U.S. July consumer prices up

By Glenn Somerville

WASHINGTON (Reuters) – Surging energy costs drove U.S.
consumer prices up in July at the sharpest rate in three months
but aside from energy, inflation pressures remained muted,
according a government report on Tuesday.

Meanwhile, ground-breaking on new homes dipped in July and
industrial production barely increased as hurricanes
interrupted output at some mines.

The Consumer Price Index, the most widely used gauge of
inflation pressures, climbed 0.5 percent last month after an
unchanged reading in June, other reports said.

The monthly rise in consumer prices was the biggest since a
matching 0.5 percent jump in April and topped Wall Street
economists’ forecasts for a 0.4 percent rise.

But so-called core inflation, which strips out volatile
food and energy items, inched up just 0.1 percent for a third
straight month — less than the 0.2 percent climb economists
had anticipated.

Over the past 12 months, this closely watched measure of
consumer prices has risen a moderate 2.1 percent.

Separately, the Commerce Department reported a slip in
overall housing starts last month but not enough to imply any
significant softening in the vital housing sector.

July housing starts eased 0.1 percent to a 2.042 million
unit annual rate, down from June’s revised 2.045 million unit
pace. But single-family home starts rose 0.5 percent to a 1.711
million unit pace, partly offsetting a 3.2 percent decline in
multifamily housing starts, which held a 331,000 unit clip.

In a third report, the Federal Reserve said industrial
production increased a moderate 0.1 percent in July after a
much stronger 0.8 percent rise in June. Bad weather played a
role, helping to push mining output down by 1.3 percent.

Financial markets were initially confused by the CPI data
that showed a jump in headline prices but a contained core rate
of inflation. Prices for U.S. Treasury debt securities firmed
subsequently as investors concluded the CPI report was not
raising a red flag on inflation.

Economists said both the housing starts and consumer price
data were encouraging signs for the economy.

“There is still no inflation out there,” said economist
David Wyss of Standard and Poor’s Ratings Service in New York.

“The only inflation out there is energy,” he said, adding
that this implied the Federal Reserve can stick with its
strategy of small, measured interest-rate rises to keep prices
in check and allow the economy to keep growing.

“There is no change for the Fed. They are more focused on
the real economy. They are looking for any sign that core
inflation is going up,” Wyss said.

Energy prices rose 3.8 percent in July, a sharp reversal
from declines of 0.5 percent in June and 2 percent in May.
Gasoline prices jumped 6.1 percent. Oil and gas prices have
been plumbing uncharted territory in recent weeks and show
little sign of letting up.

Food prices edged up 0.2 percent after a 0.1 percent gain
in June.

Apparel costs and new motor vehicle prices both logged big
declines, with clothing’s 0.9 percent drop the biggest since
April 2001 and the 1.0 percent slide in new motor vehicle
prices the largest since January 1975. Automotive costs have
been driven lower by manufacturer price deals.

Separate industry reports showed a softening in sales at
retailers and constituted a potentially worrying sign about the
important back-to-school shopping season.