CPI Posts Moderate Gain Last Month

U.S. consumer prices rose moderately last month and industrial output posted its biggest gain since January, according to data Friday that showed deflation risks ebbing as the recovery gains speed.

The Labor Department said its consumer price index, the best-known inflation gauge, rose 0.2% in July. The closely watched core price measure, which strips out food and energy costs to give a clearer view of underlying trends, also climbed 0.2%.

Separately, the Federal Reserve said industrial production jumped an unexpectedly large 0.5%, boosted by a big gain in utilities output and a third straight monthly rise in manufacturing activity.

The advance in the core CPI was a bit steeper than the 0.1% rise expected on Wall Street, and economists said it should help ease fears of deflation -- a potentially harmful sustained drop in prices -- without fueling inflation worries.

“The CPI numbers show inflation is still very tame. Looking at the breakdown of the report, it’s clear we are still comfortably in a range at a low level of inflation,” said Gary Thayer, chief economist at A.G. Edwards & Sons in St. Louis.

The price index for shelter, which includes hotels and the cost of owning a home, rose 0.3% last month after barely budging in June. The department said the gain accounted for about 85% of the pickup in the core CPI, which had been unchanged a month earlier.

Education and communication costs, down for four months, rose 0.5% as tuition surged 0.7%.

Medical-care inflation, which surprised economists by slowing this year, resumed its prior quick ascent with a 0.5% gain. Tobacco prices, which had fallen in May and June, rose a sharp 1.2% on the back of tax increases.

Transportation costs gained 0.2%, reflecting a 1.6% rise in airline fares and a 1.5% step-up in fuel prices, while prices for clothing and recreation were flat.

At its policy meeting Tuesday, the Federal Reserve opted to leave banks’ overnight borrowing costs at a 45-year low of 1% as it continued to express concern over the potential for an “unwelcome fall in inflation” from already low levels.

Fed officials have been worried a slowing in inflation could sap some of the economic stimulus from low rates because it is inflation-adjusted rates that matter for growth.

The pickup in industrial activity was the latest in a string of data that have led economists to conclude the economy is accelerating nicely.