Consumer prices edge up in July

Falling gasoline costs held U.S. consumer prices nearly in check in July and industrial output rose, according to data that suggested the economy was sound despite credit fears in financial markets.

Other reports Wednesday showed a slight drop in New York state manufacturing activity this month and a decline in the amount of capital flowing into the U.S. in June.

Analysts said the latest data, combined with reports this week showing solid retail sales and a shrinking trade deficit, pointed to an economy that was doing pretty well.

“Things don’t look that bad. There is no evidence yet in the data that the economy is on the cusp of losing steam,” said Michael Darda, chief economist at MKM Partners in Greenwich, Conn.

A gauge of home builder sentiment from the National Assn. of Home Builders, however, hit its lowest level since January 1991, suggesting the housing slump had a ways to run.

“Builders realize that issues related to mortgage credit cost and availability have become more acute, filtering some prospective buyers out of the market and prompting others to delay their decision to purchase a new home,” said association President Brian Catalde, a builder from El Segundo.

The bulk of Wednesday’s data was close to expectations on Wall Street, and financial markets focused more on the fear that credit would evaporate as problems in the sub-prime mortgage market widen than on the economy’s health.

The consumer price index, a key inflation gauge, rose just 0.1% last month as gasoline prices fell 1.7%, the Labor Department said. Economists polled by Reuters had expected a rise of 0.2%.

So-called core inflation, which excludes food and energy prices, rose 0.2%, matching forecasts. On a year-over-year basis, the core index held steady at 2.2% for a third straight month.

The Fed said last week that inflation remained its predominant concern, although it acknowledged that a wobbly housing market had led to tightening credit terms for some households and businesses.

“The July CPI readings don’t make it any harder or easier for the Fed to cut interest rates,” said Richard Huber, economist at A.G. Edwards & Sons Inc. in St. Louis.

“The trade deficit data we got yesterday will drive [gross domestic product] numbers for the second quarter higher, which will allow the Fed to say that it’s still focused on inflation.”

Industrial output rose 0.3% in July as automotive-related production surged 2.6%, offsetting a big decline in utility output, a Federal Reserve report showed.

Manufacturing output rose 0.6%.

“Low inventory levels, strong export demand and ongoing moderate economic growth at home have allowed the manufacturing sector to shake off the depressing effects of the housing downturn,” said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI.

Also Wednesday, the U.S. Treasury said net overall capital inflows into the U.S. dropped to $58.8 billion in June from May’s revised inflow of $107.3 billion, hurt by a plunge in net purchases of U.S. securities by private investors.

June’s net overall capital inflow barely covered the U.S. trade deficit for the month of $58.1 billion.