Consumer Inflation Barely Budges — Economic News

Inflation slowed in July after sharp increases the previous two months, the government said in a report that stopped short of giving the Federal Reserve the evidence it has been seeking to raise interest rates. Food inflation continued to rise across the board (up 0.2 percent) and prices could keep rising due to the effect of the California drought and western wildfires on agriculture and distribution.

The Labor Department said the increase primarily reflected a 0.4 percent advance by the shelter index, although the indexes for medical care and apparel also rose.

Low inflation has provided consumers with greater purchasing power in recent months, thanks in large part to the collapse in the price of oil over the past year.

Energy prices edged up 0.1 per cent last month.

Month-over-month, consumer price inflation declined 0.2% in July, compared to estimates for 0.3% drop and following a flat reading in June. We expect CPI inflation will average 3.5% this year.

A year later, gasoline costs may be stabilizing, peaking for the summer in mid-July at $2.92 for a gallon of regular and declining modestly since then, according to the U.S. Energy Information Administration.

The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services.

UK house prices increased by 5.7% in the year to June 2015, up from 5.6% in the year to May 2015. However, apparel and footwear prices rose in July. A short period of stabilization in energy prices appears to be over, as a global supply glut that’s expected to last through 2016 weighs on oil.

The muted gain in both headline and core CPI will “certainly give the Fed pause for thought in whether to raise interest rates or not at the next FOMC meeting in mid-September”, said Paul Ashworth, chief US economist at Capital Economics.

Inflation has long run below the Fed’s 2% target.

The Fed uses a different inflation measure based on personal consumption expenditures, which was up 0.3% for the 12 months ended June 30, the latest available data.

“Whilst it is true that the wage rises and low inflation has put more money in consumers’ pockets, we are still only able to spend, and consume, so much, particularly in the clothing sector”. The consensus is tightly bunched around 1.8% but there is an upward bias. The increase reflects only slight inflation and increase average hourly pay and hours worked. Output prices dropped 1.6% each in July, June and May.