Consumer prices hold steady; outputs post gain

Core inflation continues
holding steady.

WASHINGTON (AP) — A big drop in the cost of gasoline in July contributed to the smallest rise in consumer prices in eight months while industrial output posted a solid gain.

Consumer prices, which had been surging earlier in the year, edged up a tiny 0.1 percent last month, the smallest advance since prices were flat last November, the Labor Department reported Wednesday. Core inflation, which excludes volatile energy and food, was also well-behaved, rising by just 0.2 percent, the same as June.

Meanwhile, the Federal Reserve said that industrial output rose by 0.3 percent in July, following a 0.6 percent increase in June. The increase last month was led by a solid 0.6 percent increase in manufacturing, the second straight month that factory output has increased by this level.

Output in mining, which includes oil production, rose by 0.7 percent but output at the nation’s utilities fell by 2.7 percent last month.

The increase in industrial output was in line with expectations. Analysts believe that U.S. factories, after being hit by a slowdown late last year, are starting to revive the economy in spite of continued troubles in the housing sector.

Housing slump

Two other reports Wednesday showed that housing remained under pressure. The National Association of Realtors said that home sales fell in 41 states in the second quarter, compared to the same period a year ago. The declines were led by drops of 41.3 percent in Florida and 37.5 percent in Nevada, two previously hot sales areas that have been hard hit by the current slump.

And the National Association of Home Builders said its monthly survey of builder confidence fell to 22 in August, its lowest level in more than 16 years, as rising problems in obtaining home loans dampened sales prospects.

The performance of consumer inflation in July was in line with Wall Street expectations and should bolster investors’ hopes that declining inflation pressures will give the Federal Reserve room to cut interest rates if needed to deal with the recent turbulence in stock and credit markets.

The report on the Consumer Price Index, the most closely followed inflation barometer, showed that consumer prices have been rising at a seasonally adjusted annual rate of 4.5 percent so far this year, up from a 2.5 percent increase in prices for all of 2006. However, that acceleration has been concentrated in energy and to a lesser extent food prices, which have been pushed higher because of growing demand for corn to produce ethanol.

Core inflation

Investors are hoping the Fed will see the improvement in core inflation as evidence that despite the big increases in energy costs, overall inflation pressures have remained contained. However, some analysts believe the Fed, which has not changed rates in more than a year, may want to wait for further evidence of declining inflation before it considers actual rate cuts.

The Fed has added billions of dollars to the U.S. banking system in the past several days, in an effort to keep its target for a key short-term interest rate from rising and also to assure investors that it was keeping close tabs on the market turmoil.

For July, energy prices fell by 1 percent. It was the second straight decline in energy costs and was the biggest one-month drop since January.

Food costs were up 0.3 percent, down from a 0.5 percent jump in June. The slowdown was helped by falling prices for beef, poultry and vegetables.

In other areas, clothing costs increased by 0.4 percent but that rise followed four straight months of falling prices for clothes. The price for new cars and airline tickets both showed no gains in July but medical care, always one of the fastest rising price areas, increased by 0.6 percent, the biggest gain in six months.