Consumer prices in U.S. increased less than forecast in July

WASHINGTON – The cost of living in the U.S. rose in July at the slowest pace in three months, casting doubt on how quickly inflation will return toward the Federal Reserve’s goal.

The consumer price index climbed 0.1 percent after a 0.3 percent gain the month before, a Labor Department report showed Wednesday in Washington. The median forecast of 78 economists surveyed by Bloomberg projected a 0.2 percent increase. Excluding food and fuel, costs also rose less than projected.

Oil has plunged more than 30 percent from this year’s closing peak in June amid a global supply glut that will probably hold down inflation in the coming months. When combined with a stronger dollar and slower growth overseas, the energy slump will make the Fed’s price goal even more elusive.

“The little bit of inflation uptick there had been is fading,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who correctly forecast the increase in consumer prices. “It’s hard for policy makers to be reasonably confident that inflation is heading back toward that 2 percent target.”

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The yield on the Treasury two-year note, the most sensitive to Fed monetary policy prospects, was little changed at 0.72 percent at 8:53 a.m. in New York, the same as late on Tuesday.

Consumer costs over the past 12 months increased 0.2 percent.

Survey results

Economists’ projections in the Bloomberg survey ranged from a 0.1 percent decline to 0.3 percent increase from the prior month.

Energy costs rose 0.1 percent in July after a 1.7 percent increase in June. 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 average cost of a gallon of regular gasoline was $2.66 as of Aug. 17, down from this year’s high of $2.80 in mid-June, according to AAA, the biggest U.S. auto group. It had been as low as $2.03 in January

Excluding food and fuel, the so-called core index climbed 0.1 percent in July following a 0.2 percent increase the prior month. That index was up 1.8 percent from July 2014, after advancing 1.8 percent in the year through June.

Higher prices for shelter, including rents and hotel rates, are helping prop up inflation, offsetting declines in a broad stretch of categories, including air fares, new and used cars and household furnishings.

Shelter costs

Expenses for shelter climbed 0.4 percent, the most since February 2007, driven mainly last month by hotel rates.

Air fares plunged 5.6 percent in July, the most since December 1995, showing how falling fuel costs can ripple through the economy.

Fed policy makers have twin goals of maximum sustainable employment and inflation of around 2 percent, progress toward which will dictate when, and how often, they’ll raise interest rates.

The Fed’s preferred measure of price pressures, linked to consumer spending, climbed by 0.3 percent in June from a year before. It’s been under the Fed’s target for more than three years.

The policy-making Federal Open Market Committee next meets on Sept. 16-17, and 77 percent of forecasters in a Bloomberg survey taken Aug. 7-12 said the central bank will raise its main policy rate next month.

The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.

The Labor Department’s gauge of wholesale prices, which includes 75 percent of all U.S. goods and services, climbed 0.2 percent in July after a 0.4 percent gain the month before. A separate report indicated the cost of imported goods fell 0.9 percent last month.

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