U.S. Consumer Prices Rose Slightly in July -- Update
12 August 2017 - 8:11AM
Dow Jones News
By Sarah Chaney
WASHINGTON -- U. S. inflation was subdued in July, held down in
part by weakness in hotel rates, which perpetuates a soft trend
that is puzzling Federal Reserve officials who expected an
improving economy to be pushing consumer prices up at a faster
rate.
The consumer-price index, which measures what Americans pay for
everything from ice cream to doctor visits, increased 0.1% in July
from the prior month, the Labor Department said Friday. Excluding
the often-volatile categories of food and energy, so-called core
prices also rose 0.1%. From a year earlier, overall consumer prices
climbed 1.7%, as did core prices, below the Fed's 2% goal for
inflation.
Five months of 0.1% growth or lower in core prices marks "a
remarkable run in the context of an economy that is clocking
above-trend growth and a labor market that has moved well into
tight territory," said Stephen Stanley, chief economist at Amherst
Pierpont.
The cost to consumers of lodging away from home, which includes
hotels and housing at schools, fell 4.2% in July from a month
earlier, the biggest one-month decline since records began in 1997.
Over the past year, these prices have declined 2.4%.
Analysts say this could be an anomaly, and STR Inc. figures on
hotel rates in the U.S. illustrate growth in the average price per
room of more than 2% in the first half of 2017 from the same period
a year earlier.
"Hotel room rates are notoriously volatile and, consequently, we
would normally expect July's fall to be reversed in August," said
Paul Ashworth, chief economist at Capital Economics, in a note to
clients.
Other special factors held down prices earlier in the year,
including a big drop in rate for cellular phone services.
Elsewhere, July saw gains in some areas that had been weak,
including airline fares, apparel, physicians' services and
prescription-drug prices. That might portend some pickup down the
road, as Fed officials are expecting. Overall prices grew
month-over-month for the first time since April.
Despite some upsides, overall prices have grown at a seasonally
adjusted annual rate of 0.9%, while core prices have risen just
1.3% through the first seven months of this year. Though this isn't
the Fed's preferred inflation measure, it nonetheless shows a
weakened inflation outlook.
The Fed is expected to announce in September that it will begin
to unwind a $4.5 trillion securities portfolio. The low inflation
numbers aren't likely to derail that move, but if they persist the
data could give the central bank pause when considering whether to
raise its benchmark interest rate later this year.
The Fed is tasked with achieving maximum sustainable employment
and stable prices. With unemployment at 4.3% in July, it appears
the Fed has closed in on one half of its mandate. Inflation,
however, has disappointed. Officials want inflation near 2%. They
believe increases much beyond that number eat into the purchasing
power of household paychecks and make it harder for business to
plan while drops below 2% inflation signal anemic growth and risk
of persistent recession.
"We've been sitting in the same range of around 1.5% to 2 %,"
said Tim Courtney, CIO of Exencial Wealth Advisors, a registered
investment adviser. "What we're seeing is this reversion back to
the markets we've been in since the middle part of 2014."
The Fed's preferred measure of inflation, the price index for
personal-consumption expenditures, was unchanged in June from the
prior month, the second straight flat reading. It was up 1.4% in
June from a year earlier and has dropped for four consecutive
months on an annual basis, from 2.2% in February. Though soft
energy prices have played a role in weak inflation readings, it
wasn't the only factor.
Core PCE prices came in at 1.5% from a year earlier, down from
1.9% in February.
The consumer-price index tends to run a little bit higher than
the personal-consumption index, reflecting different methods for
calculating inflation. Both gauges have followed the same
pattern.
A separate Labor Department report showed average weekly
earnings for private-sector workers, adjusted for inflation,
increased 0.2% in July from the prior month. From a year earlier,
inflation-adjusted weekly earnings were up 1.1%.
--Josh Mitchell contributed to this article.
Write to Sarah Chaney at sarah.chaney@wsj.com
(END) Dow Jones Newswires
August 11, 2017 17:56 ET (21:56 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.