Data Expected to Show No Letup in Inflation

Increases in U.S. consumer prices accelerated in July and home construction declined, evidence that a weakening economy has yet to damp inflation, economists said in advance of government economic reports this week.

The consumer price index rose 0.4% in July after a 0.2% gain in June, according to the median forecast in a Bloomberg News survey before the Labor Department’s report, expected Wednesday.

Core prices, which exclude food and energy, are forecast to have risen 2.8% from a year earlier, the most since November 2001. Housing starts probably fell to almost a two-year low.

Federal Reserve policymakers, who last week kept their interest rate target unchanged after two years of increases, said a slowdown in growth would eventually limit price pressures.

For central bankers to remain on the sidelines, they will need proof that the slowdown is proceeding on track.

“How much growth slows will depend more than anything else on how bad the downturn in the housing market becomes,” said Paul Ashworth, international economist at Capital Economics Ltd. in London.

As prices keep rising, “there is likely to be constant speculation over the next few months about whether the Fed will return to raising rates,” he said.

Core consumer prices probably rose 0.3% for a fifth consecutive month in July, the survey showed. The last time core prices increased as much or more in as many months was from October 1992 to February 1993.

“Inflation pressures are continuing to build, despite the moderation in growth,” said Ethan Harris, chief U.S. economist at Lehman Bros. Inc. in New York.

A Labor Department report Tuesday is expected to show that wholesale prices are also rising. Prices paid to factories, farmers and other producers rose 0.4% in July after a 0.5% gain the previous month, according to the survey median. Core producer prices rose 0.2% for a second month.

Builders probably broke ground on new homes at an annual rate of 1.81 million last month, down 2.2% from June and the lowest since November 2004, based on the survey median. Building permits fell to an annual rate of 1.84 million from 1.862 million in June. The Commerce Department will issue a report Wednesday.

At best, steady interest rates will stabilize rather than revive housing demand, according to industry executives.

“The market is very, very bumpy,” Bruce Karatz, chief executive of Los Angeles-based home builder KB Home, said Wednesday. “The pause is probably good because it has a little bit of a settling effect, but I don’t think it has a tremendous effect on our industry at this point.”

Manufacturing is one area of the economy still holding up. Production at factories, mines and utilities rose 0.6% in July after a 0.8% gain in June, a Fed report Wednesday is expected to show. A jump in electricity use, as Americans kept air conditioners on during the second-hottest July in 112 years of records, contributed to the increase, economists said.

Regional measures of factory activity are expected to confirm that manufacturing kept chugging along this month.

From Bloomberg News

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The Week Ahead

Today

* Treasury bill auction.

Tuesday

* Labor Department reports on producer price index for July.

* Quarterly earnings reports expected from Wal-Mart Stores Inc., Abercrombie & Fitch Co., American Eagle Outfitters Inc., Deere & Co., Home Depot Inc. and Staples Inc.

Wednesday

* Labor Department reports on consumer price index for July.

* Commerce Department reports on housing starts for July.

* Federal Reserve reports on industrial production for July.

* Quarterly earnings reports due from Hewlett-Packard Co. and Limited Brands Inc.

Thursday

* Congressional Budget Office updates budget and economic forecasts.

* Labor Department reports on weekly jobless claims.

* Freddie Mac reports on mortgage rates.

* Conference Board reports its monthly index of leading economic indicators.

* Quarterly earnings reports expected from Brocade Communications Systems Inc., Gap Inc., Sears Holdings Corp., Dell Inc. and Barnes & Noble Inc.

Friday

* Quarterly earnings reports due from AnnTaylor Stores Corp. and J.M. Smucker Co.

From the Associated Press