WASHINGTON — A big drop in the cost of gasoline in July contributed to the smallest rise in consumer prices in eight months while US 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 yesterday. 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 US utilities fell by 2.7 percent last month.
The increase in industrial output was in line with expectations. Analysts believe that US 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.
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.
At its meeting last week, the Fed continued to state that its biggest worry was that inflation pressures will not ease. However, hopes for a Fed rate cut, possibly as soon as September, have been growing since that time given a global sell-off of stocks spawned by worries that spreading credit problems could derail the current economic expansion.
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.
Energy prices, which rose 2.9 percent for all of 2006, have been soaring at an annual rate of 21.3 percent through the first seven months of this year. Food costs have been rising at a rate of 5.7 percent this year, compared to an increase of 2.1 percent for all of last year.
Meanwhile, sales of existing US homes fell in 41 states during the April-June quarter while home prices were down in one-third of the metropolitan areas surveyed, a real estate trade group reported yesterday. The new figures from the National Association of Realtors underscored the severity of the current housing slump, the worst downturn in 16 years.
However, Realtors officials said they saw some glimmers of hope in the data. They noted that existing home prices were up in 97 of the 149 metropolitan areas surveyed compared with the sales prices of a year ago.