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US consumer prices increase broadly in July
[WASHINGTON] US consumer prices rose broadly in July, but the increase in inflation will likely do little to change expectations that the Federal Reserve will cut interest rates again next month amid worsening trade tensions.
The Labour Department said on Tuesday its consumer price index increased 0.3 per cent last month, lifted by gains in the cost of energy products and a range of other goods. The CPI had edged up 0.1 per cent for two straight months. In the 12 months through July, the CPI increased 1.8 per cent after advancing 1.6 per cent in June.
Economists polled by Reuters had forecast the CPI would accelerate 0.3 per cent in July and rise 1.7 per cent on a year-on-year basis.
Excluding the volatile food and energy components, the CPI gained 0.3 per cent after rising by the same margin in June. The so-called core CPI was boosted by increases in prices for apparel, airline tickets, healthcare and household furnishings.
In the 12 months through July, the core CPI climbed 2.2 per cent after rising 2.1 per cent in June.
The Fed, which has a 2 per cent inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index rose 1.6 per cent on a year-on-year basis in June and has undershot its target this year.
Financial markets have fully priced in a rate cut at the US central bank's Sept 17-18 policy meeting following a recent escalation in the bruising trade war between the United States and China, which led to an inversion of the US Treasury yield curve and raised the risk of a recession.
Worries about the impact of the trade tensions on the US economic expansion, the longest in history, prompted the Fed to cut its short-term lending rate last month for the first time since 2008.
Inflation has remained moderate despite the White House's tariffs on Chinese imports as the duties have been largely on capital goods. That could change after President Donald Trump announced last month an additional 10 per cent tariff on US$300 billion worth of Chinese imports starting Sept 1.
The new tariffs would affect mostly consumer goods. Goldman Sachs estimates that tariffs have boosted year-on-year core PCE inflation by 10-15 basis points so far and that the new duties will add another 20 basis points.
In July, gasoline prices rebounded 2.5 per cent after dropping 3.6 per cent in June. Electricity rose 0.6 per cent. Food prices were unchanged for a second straight month. Food consumed at home slipped 0.1 per cent.
Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.2 per cent in July, the smallest gain since December 2018. Rents had risen by 0.3 per cent for six straight months.
Healthcare costs jumped 0.5 per cent after advancing 0.3 per cent in June.
Apparel prices rose 0.4 per cent after surging 1.1 per cent in June. Used motor vehicles and trucks prices increased 0.9 per cent in July after rebounding 1.6 per cent in the prior month. Prices for new motor vehicles fell 0.2 per cent. The cost of household furnishings and operations increased 0.4 per cent, rising for a third straight month.