Inflation markers remain steady
Consumer prices rise 0.1% in July
WASHINGTON — 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 further 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 raising interest rates.
The Fed has raised its benchmark interest rate in March and June, and has signaled it plans a third rate
● increase 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.
“It is a weak reading,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York, who correctly forecast
a 0.1 percent rise in the consumer price index. Right now, a December interest-rate increase from the Fed “is almost like a coin toss.”
Joel Naroff, chief economist at Naroff Economic Advisors, said 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
Fed Chairman 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 proved wrong, she is ready to support a change in the Fed’s plans for rate increases. The Fed meets again in September. Analysts believe it will keep rates unchanged and may not change them again until December.
Federal Reserve Bank of
Minneapolis President Neel Kashkari said Thursday that the central bank has the luxury of waiting to raise interest rates until it sees more signs of wage and price pressures.
Speaking at an event in Texas, Dallas Fed President Robert Kaplan also said the Fed can hold off on raising interest rates until inflation shows signs of picking up. Kaplan votes on monetary policy this year, though he backed its decision to raise rates in March and in June.
“I at this stage want to see continued evidence — or more
evidence — that we’re making progress on reaching our inflation objective,” he said. “I’m willing to be patient.”
For July, the consumer price index 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 fell a record 4.9 percent in July, the biggest onemonth decline 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. Food costs were up a modest 0.2 percent.