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Lower gasoline prices cause inflation to slow
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Los Angeles Times (TNS)

WASHINGTON – Prices for a wide variety of consumer goods held steady in July, pushing down the annual inflation rate in a report that could add to economic concerns of Federal Reserve officials.

The rise in the consumer price index during the previous four months was halted by a 4.7 percent drop in gasoline prices in July, which offset modest increases in other goods and services, the Labor Department said Tuesday.

Consumer prices had risen 0.2 percent in June.

Analysts expected the overall index to be unchanged. But they had forecast that so-called core prices, which exclude often-volatile food and energy costs, would rise 0.2 percent in July.

With lower gas prices, the core price index increased just 0.1 percent.

Economists say a moderate increase in prices is important for overall growth, helping push up wages and make it more cost-effective to borrow money.

Federal Reserve policymakers want to see inflation rising 2 percent a year. But the recovery from the Great Recession has been marked by extremely low inflation. For the 12 months that ended July 31, prices increased 0.8 percent. That was down from the 1 percent increase for the 12 months that ended June 30.

Lower gasoline costs have been a major factor in the low inflation rate, although prices at the pump had been rising since February before last month’s decline.

Core prices were up 2.2 percent for the 12 months that ended July 31, the eighth consecutive month of at least 2 percent year-over-year growth and a sign that inflation might be firming. Still, July’s figure was down from a 2.3 percent increase for the 12 months that ended June 30.

The Fed uses a different inflation gauge, based on personal consumption expenditures, that runs lower than the consumer price index. And the slowdown in inflation growth could add to concerns about slow economic growth and lead Fed policymakers to hold off on raising a key interest rate at their next meeting in September.

Gus Faucher, deputy chief economist at PNC Financial Services Group, said the low inflation rate meant the Fed was under no pressure to raise interest rates to cool the economy. He predicted Fed officials would not increase the rate until December, when “inflation should be picking up.”

But Ian Shepherdson, chief economist at Pantheon Macroeconomics, wasn’t concerned about the July price report. He said that the inflation trend was still rising and that prices were pushed down last month by temporary factors, including the drop in gas prices and a 4.9 percent decline in airline fares caused by lower jet fuel costs.