USA consumer prices were unchanged in July as the cost of gasoline fell for the first time in five months and underlying inflation moderated, which could further diminish the prospect of a Federal Reserve interest rate increase this year.
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Outside of food and energy, new auto prices posted a small 0.2 percent rise while housing costs and medical care also increased. Excluding the volatile food and energy categories, the so-called core CPI went up 0.1 percent in July on a seasonally adjusted basis.
The Reserve Bank of India had left key rates unchanged in its policy review last week, citing upside risks to the target of 5 per cent inflation for March 2017.
Tuesday’s mixed reports came as influential New York Fed President William Dudley said the US central bank could hike rates next month, citing a tightening labor market that he said was starting to spur faster wage growth.
Construction on new houses was beginning at a rate of 1.21 million units a year in July, which was more than expected.
Since unemployment now stands at 4.9%, close to the level that is generally considered to be full employment, inflation data has taken on particular importance for Fed watchers. WPI inflation for May has been revised up to 1.24% from 0.79%, thanks to upward revision across board.
The cost of consumer goods was unchanged in July, as inflation remains tepid for almost everything Americans buy. Owners’ equivalent rent of primary residence jumped 0.3 per cent after increasing by the same margin in June.
The price of these goods and services are then tracked over time, to illustrate the change in the cost of living over time.
American shoppers found on average that retail prices remained flat overall last month as gasoline got cheaper for the first time in five months, helping to offset small increases elsewhere.
“Continued recovery in housing will be supported by historically low mortgage rates, coupled with a firming labor market that has begun to spur on wage gains for workers”, said Neil Shankar, an economist at TD Bank. The increase brings inflation a little close to the long term target of 2.0%. Medical costs rose 0.5% in the monthly reading, but they were up 4% versus a year earlier.
In a separate report on Tuesday, the Fed said United States industrial production shot up 0.7 percent last month after rising 0.4 percent in June. “An adverse base effect was expected to result in a significant rise in WPI inflation in July 2016”.
Prices for a wide variety of consumer goods held steady in July, pushing down the annual inflation rate in a report that could add to economic concerns of Federal Reserve officials. Home Depot Inc on Tuesday raised its full-year earnings forecast after reporting a 6.6 percent rise in quarterly sales.
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Another implication could be higher CPI inflation in future, as the rise in WPI inflation works its way into consumer prices, explains Bhattacharya.
