WASHINGTON (REUTERS) - United States 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 prospects of a Federal Reserve interest rate increase this year.
The Labor Department said on Tuesday that the flat reading in its Consumer Price Index was the weakest since February and followed two straight monthly increases of 0.2 per cent. In the 12 months through July, the CPI rose 0.8 per cent after increasing 1.0 per cent in June.
Economists had forecast the CPI would be unchanged last month and rise 0.9 per cent from a year ago.
The so-called core CPI, which strips out food and energy costs, edged up 0.1 per cent in July. It had risen by 0.2 per cent in the previous three consecutive months. The year-on-year core CPI increased 2.2 per cent after rising 2.3 per cent in June.
The Fed has a 2 per cent inflation target and tracks an inflation measure which has been stuck at 1.6 per cent since March. Coming in the wake of last week's weak retail sales report for July, the tame inflation reading could see financial markets dialing back their rate hike expectations for 2016.
Late on Monday, financial markets were placing a 46.7 per cent probability of a rate increase at the Fed's December policy meeting, according to CME Group's FedWatch program. A September rate hike has been virtually priced out.
With the labour market perceived to be either at or near full employment, Fed officials are focused on persistently low inflation. The U.S. central bank raised its benchmark overnight interest rate in December for the first time in nearly a decade.
In July, gasoline prices fell 4.7 per cent, the first drop since February, reflecting renewed declines in crude oil prices. Gasoline rose 3.3 per cent in June. Food prices were unchanged, but the cost of food consumed at home fell 0.2 per cent.
Within the core CPI basket, housing and medical costs continued to rise. Owners' equivalent rent of primary residence jumped 0.3 per cent after increasing by the same margin in June.
Medical care costs climbed 0.5 per cent after rising 0.2 per cent in June. The cost of hospital services increased 0.4 per cent and doctor visits costs rose 0.7 per cent. Prices for prescription medicine shot up 0.9 per cent.
Prices for new motor vehicles rose for the first time since February, while prices for apparel were unchanged after falling 0.4 per cent in June.