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WASHINGTON (Reuters) - U.S. consumer prices increased more than expected in July, with a measure of underlying inflation rising by the most in 29-1/2 years as the costs of goods and services climbed.
The report from the Labor Department on Wednesday probably does not mark the start of a troubling rise in inflation, and the Federal Reserve is likely to continue pumping money into the economy to aid the recovery from the COVID-19 recession.
Tens of millions of Americans are unemployed and coronavirus infections are spreading across the country.
The consumer price index rose 0.6% last month, with gasoline accounting for a quarter of the gain. The CPI increased by the same margin in June. In the 12 months through July, the CPI accelerated 1.0% after climbing 0.6% in June.
Economists polled by Reuters had forecast the CPI would rise 0.3% in July and gain 0.8% on a year-on-year basis.
Excluding the volatile food and energy components, the CPI jumped 0.6% last month. That was the largest gain since January 1991 and followed a 0.2% rise in June. In the 12 months through July, the core CPI surged 1.6% after increasing 1.2% in June.
The Federal Reserve has adopted an extraordinarily easy monetary policy, which has seen the U.S. central bank slashing interest rates to near zero as well as making large-scale asset purchases and funneling loans to firms among other measures.
But the budding recovery from the pandemic is showing signs of stress as new coronavirus infections spiral across the United States, forcing authorities in some of the hot spots to either shut down businesses again or pause reopenings.
Job growth slowed significantly in July and at least 31.3 million people are on unemployment benefits. The economy, which entered recession in February, suffered its biggest blow since the Great Depression in the second quarter, with gross domestic product dropping at its steepest pace in at least 73 years.
The Fed tracks the core personal consumption expenditures (PCE) price index for its 2% inflation target. The core PCE price index rose 0.9% on a year-on-year basis in June. July’s core PCE price index data will be released later this month.
Stocks on Wall Street opened higher with the S&P 500 .SPX index edging toward a record high as a sharp fall in U.S. oil stockpiles drove up prices. The dollar .DXY fell against a basket of currencies. U.S. Treasury prices were trading mostly lower.
Gasoline prices advanced 5.6% in July after jumping 12.3% in June. Food prices rose 0.2%, the first increase since April 2019, after rising 0.6% in June.
The cost of food consumed at home rose 1.1%. Beef prices tumbled 2.2% after surging in recent months. The cost of dairy products, nonalcoholic beverages and cereals also rose. The cost of food consumed away from home rose 0.5%. Prices for full service meals increased 0.4%.
Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.2%. That followed June’s 0.1% gain, which was the smallest rise since July 2013. Many tenants have entered into forbearance agreements with landlords. Demand for rental accommodation has also slowed, suggesting underlying inflation could remain benign for a while.
President Donald Trump last weekend signed an executive order stopping evictions from rental housing that has federal financial backing.
Consumers also paid more for health care in July, with prices rising 0.4% after the same gain in June. The cost of visits to doctors increased 0.7% and prices for hospital services rose 0.2%. The cost of prescription medication, however, fell 0.2%.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao
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