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Costlier energy drives U.S. July consumer prices up

Posted on: Tuesday, 16 August 2005, 08:56 CDT

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.

Source: REUTERS

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