Pulled back by a steep decline in airfares despite rising cost of housing, U.S. inflation only rose modestly in July with another lower-than-projected rise in consumer prices likely this year.
Reuters highlighted the impact of the 5.6 percent month-on-month decline in airfare, the largest since 1995, while the Wall Street Journal led with the 3.1 percent rise in shelter costs, which make up a third of the Consumer Price Index. Both stories noted that index rose for the sixth straight month in July, inching up by 0.1 percent and 0.2 percent from the previous month and year respectively according to the Labor Department on Wednesday.
Economists interviewed by Reuters said the first interest rate hike in almost a decade by the Federal Reserve remains possible despite the soft inflation figures since other indicators point to a strengthening economy such us an improving housing sector and tightening labor market.
The Journal, meanwhile, noted that economists are concerned the slow increase in consumer prices will impact wage growth and affect the ability of people and businesses to improve their finances. It added that Atlanta Fed president Dennis Lockhart had said the U.S. central bank needs to be convinced inflation is approaching safe levels and nearing its 2 percent target, and the consumer price increases have fallen below monetary authorities targets for the past three years.
Both reports also said inflation has been weighed down by easing gasoline prices, which have plummeted by more than a fifth from last year, as crude oil costs continues to slide due to oversupply. The stronger dollar has also slowed down inflation as it makes imported goods more affordable.
Reuters noted that core CPI, which excludes volatile items such as food and energy, rose by only 0.1 in July due largely to decline in airfare prices. It added that core CPI rose by 1.8 percent in 12 months through July and has reached this level for the fourth time in five months.
