US inflation still tame as consumer prices rise less than expected

WASHINGTON • Consumer prices in the United States rose less than expected last month, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year.

The Labour Department yesterday said its Consumer Price Index (CPI) edged up by 0.1 per cent last month after being unchanged in June. That lifted the year-on-year CPI increase to 1.7 per cent in July, from 1.6 per cent in June.

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 to 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 US 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 labour market being near full employment, a conundrum for the Fed as it contemplates tightening further.

The central bank is expected to announce a plan to start reducing its US$4.2 trillion (S$5.72 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.

  • 0.1%

    Rise in the US Consumer Price Index last month, after being unchanged in June.

  •  1.7%

    Year-on-year CPI increase in July, from 1.6 per cent in June.

Petrol prices were unchanged last month 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 previous month.

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 12, 2017, with the headline 'US inflation still tame as consumer prices rise less than expected'. Print Edition | Subscribe