U.S. consumer prices rise less than expected in July

Federal Reserve may be cautious about raising interest rates

The subdued US rate of inflation in July doesn't suggest Federal Reserve will be in a rush to raise interest rates. Asif Hassan / AFP

U.S. consumer prices rose less than expected in July, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year.

The Labor Department said on Friday its Consumer Price Index edged up 0.1 per cent last month after being unchanged in June. That lifted the year-on-year increase in the CPI to 1.7 per cent from 1.6 per cent in June.

Economists polled by Reuters had forecast the CPI rising 0.2 per cent in July and climbing 1.8 per cent year-on-year.

Stripping out the volatile food and energy components, consumer prices gained 0.1 per cent for the fourth straight month. The so-called core CPI rose 1.7 per cent in the 12 months through July - it has now increased by the same margin for three straight months.

The modest gain in consumer prices could worry Fed officials who have largely viewed the retreat in inflation as temporary.

Fed Chair Janet Yellen told lawmakers last month that "some special factors," including prices for mobile phone plans and prescription drugs were partly responsible for the low inflation readings.

The U.S. central bank has a 2 per cent inflation target and tracks a measure that has been stuck at 1.5 per cent since May. Inflation remains tame despite the labor market being near full employment, a conundrum for the Fed as it contemplates tightening monetary policy further.

The central bank is expected to announce a plan to start reducing its US$4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its policy meeting next month. It is expected to delay its next rate hike until December while it monitors inflation. The Fed has raised borrowing costs twice this year.

Last month, gasoline prices were unchanged after tumbling 2.8 per cent in June. Food prices rose 0.2 per cent after being unchanged in June. The cost of rental accommodation increased 0.2 per cent in July after rising 0.3 per cent in the prior month.

Owners' equivalent rent of primary residence rose 0.3 per cent after advancing by the same margin in June.

The cost of mobile phone services fell 0.3 per cent last month after decreasing 0.8 per cent in June.

Prescription drugs jumped 1.3 per cent in July after increasing 1.0 per cent in the prior month. Prices for apparel rose 0.3 per cent after four straight months of declines. The cost of new motor vehicles fell 0.5 per cent, marking the sixth consecutive monthly decline.

*Reuters