Con­sumer prices up slightly

In­dex in­creases 0.1% in July af­ter no gain in June, 0.1% fall in May.

Austin American-Statesman - - BUSINESS - By Martin Crutsinger

Con­sumer prices posted a slight gain in July, with higher costs for med­i­cal care and cloth­ing off­set­ting de­clines for ho­tel stays and con­sumer cell­phone plans.

The La­bor De­part­ment said Fri­day that its con­sumer price in­dex edged up 0.1 per­cent last month af­ter no gain in June and a 0.1 per­cent fall in May. Core in­fla­tion, which ex­cludes volatile en­ergy and food changes, was also up a slight 0.1 per­cent in July.

Both over­all in­fla­tion and core in­fla­tion have risen an iden­ti­cal 1.7 per­cent over the past 12 months. That shows that in­fla­tion pres­sures re­main well un­der con­trol. In fact, a sep­a­rate in­fla­tion gauge fa­vored by the Fed­eral Re­serve has been slow­ing this year, rais­ing con­cerns that in­fla­tion is fall­ing far­ther from the Fed’s 2 per­cent goal.

“To­day’s re­port is just the sort of am­mu­ni­tion the Fed doves need to ar­gue against ad­di­tional rate hikes this year,” said Chris Rup­key, chief fi­nan­cial economist at MUFG in New York, re­fer­ring to the group of Fed of­fi­cials who gen­er­ally ar­gue for a go-slow ap­proach to hik­ing in­ter­est rates.

The Fed has raised its bench­mark in­ter­est rate in March and June, and it has sig­naled it plans a third rate hike be­fore year’s end. But pri­vate econ­o­mists say the Fed may stand pat for the rest of 2017 un­less in­fla­tion ac­cel­er­ates in com­ing months. The Fed’s pre­ferred in­fla­tion gauge showed a 12-month price gain of 2.2 per­cent in Fe­bru­ary, but its lat­est read­ing has slowed to a gain of just 1.4 per­cent.

Joel Naroff, chief economist at Naroff Eco­nomic Ad­vi­sors, said that the low in­fla­tion is ac­tu­ally a break for con­sumers at a time when wage growth con­tin­ues to lag.

“The Fed may want in­fla­tion to pick up but that would not be good news to house­holds,” Naroff said. “The only way spend­ing power has in­creased at all is that in­fla­tion has re­mained be­low the Fed’s tar­get rate.”

Fed Chair Janet Yellen has

at­trib­uted the in­fla­tion slow­down to tem­po­rary fac­tors such as a price war in the cel­lu­lar phone in­dus­try that has pushed monthly mo­bile phone charges down.

But she has also in­di­cated that if her view is proven wrong, she is ready to sup­port a change in the Fed’s plans for rate hikes. The Fed meets again in Septem­ber. An­a­lysts be­lieve it will keep rates un­changed and may not hike again un­til De­cem­ber.

For July, the CPI re­port showed that monthly wire­less phone charges dropped 0.3 per­cent. They are now down 13.3 per­cent over the past 12 months, the big­gest 12-month de­cline in cell­phone charges in 16 years.

The costs of ho­tel and mo­tel stays plunged a record 4.9 per­cent in July, the big­gest one-month on records that go back to 1997.

Cloth­ing costs, which had been fall­ing, rose 0.3 per­cent in July. Med­i­cal costs showed a 0.3 per­cent in­crease in med­i­cal ser­vices and an even big­ger 1 per­cent jump in med­i­cal prod­ucts such as drugs.

En­ergy costs dipped a slight 0.1 per­cent in July with the cost of gaso­line un­changed.

ROSS D. FRANKLIN / AS­SO­CI­ATED PRESS

Cloth­ing costs, which had been fall­ing, rose 0.3 per­cent in July, ac­cord­ing to the La­bor De­part­ment. Ex­perts say the Fed­eral Re­serve may stand pat on rate hikes for the rest of 2017 un­less in­fla­tion ac­cel­er­ates in com­ing months.

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