US consumer prices unchanged in July as fuel costs retreated

[WASHINGTON] The US cost of living was little changed in July, a sign subdued inflationary pressures will give Federal Reserve policymakers reason to keep interest rates low.

It was the first time in five months the consumer-price index failed to advance and followed a 0.2 per cent gain in June, Labour Department figures showed Tuesday in Washington. Excluding food and energy, prices rose 0.1 per cent, less than projected.

Inflation continues to tread below the Fed's goal as US companies remain challenged by frugal consumers and competition from cheap goods made overseas. With price pressures elusive, central bankers will be less willing to raise borrowing costs.

"The Fed still has plenty of time before raising rates," Scott Brown, St. Petersburg, Florida-based chief economist for Raymond James Financial Inc, said before the report. "The belief was that disinflationary pressures will go down and then inflation will move to the Fed's goal, but it seems that may take longer."

Also Tuesday, a Commerce Department report showed housing starts unexpectedly climbed in July to the second-highest pace of the economic expansion, indicating the housing industry remains an area of strength for the economy.

The reading on the consumer-price index matched the median forecast in a Bloomberg survey of 82 economists. Estimates ranged from a decline of 0.1 per cent to a gain of 0.2 per cent.

Prices increased 0.8 per cent in the 12 months ended in July, after rising 1 per cent in the year through June.

The increase in the core CPI measure, which excludes volatile food and fuel costs, was the smallest since March and fell short of the 0.2 per cent gain projected in the Bloomberg survey. The gauge was up 2.2 per cent from July 2015, following a 2.3 per cent advance in the year ended June.

Energy costs fell 1.6 per cent from a month earlier, the first drop in five months, while food prices were little changed.

The biggest slump in hotel room rates in eight years and the largest drop in airline fares since July 2015, offset continued rent increases, which had been propping up core consumer prices. Medical care costs also rose.

The Fed's preferred gauge of inflation, which is the Commerce Department's personal consumption expenditures measure, hasn't matched the central bank's 2 per cent goal since 2012.

The CPI is the broadest of three price gauges from the Labour Department because it includes all goods and services. About 60 per cent of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.

The steady cost of living boosted paychecks in July, a separate report from the Labour Department showed Tuesday. Hourly earnings adjusted for inflation rose 0.4 per cent in July from the prior month, the biggest gain since January, and were up 1.7 per cent over the past 12 months.

WP