Washington, DC August 16, 2006--Core consumer inflation eased back in July, rising just 0.2% after four months of 0.3% gains, the Labor Department said Wednesday.
The relatively tame 0.2% increase in core consumer price index could help keep the Federal Reserve on the sidelines at next month's policy meeting if August's inflation data do not worsen.
Core prices--which exclude food and energy costs--have risen 2.7% in the past year, the highest since late 2001. Core inflation is running about a half percentage point above the Fed's comfort zone.
So far in 2006, core prices are rising at a 3.1% annual pace, a key reason why the Fed increased overnight interest rates at 17 straight meetings over two years before pausing last week.
Meanwhile, soaring energy costs pushed the total CPI up 0.4% in July, as expected by economists surveyed by MarketWatch. The economists were expecting core prices to rise 0.3%, although a sizable number were predicting the 0.2% rise that was reported.
The CPI is up 4.1% in the past year, compared with a 4.3% increase in the 12 months ending in June.
Higher prices offset wage gains in the month, the government said in a separate report. In the past year, real (that is, inflation-adjusted) earnings fell 0.1%. Real hourly earnings are down 0.5% in the past year.
In the CPI report, energy prices rose 2.9% in July. Gasoline prices rose 5.3%, while natural gas prices were flat. Energy prices are up 20.5% in the past year.
The other major source of inflation was in the shelter category, which accounts for 30% of the CPI. Rents and owners' equivalent rent each rose 0.4% in July.
High house prices have forced more families into the rental market, pushing up rents. But because of the odd way the government measures the cost of owning a house, rising rents also mean a higher imputed cost for owning a home.
Elsewhere in the CPI, price increases were moderate. Food prices rose 0.2%, with big increases in fruit prices offset by falling poultry, beef and vegetable prices.
Medical care prices rose 0.2% in July. Transportation prices rose 1.6%, largely because of fuel prices. New vehicle prices rose 0.1%, while airfares rose 1.3%.
Apparel prices fell 1.2% in July, the biggest decline in 18 years. Apparel prices are flat over the past year.
