Consumer prices go nowhere in July

REUTERS/Neil Hall

The consumer price index was flat in July, as expected, according to the Labor Department. 

Prices were weighed down by a drop in energy prices, particularly a sharp plunge in the gasoline index following four months of gains. In July, WTI crude oil collapsed by more than 20% and into a bear market from its peak in June. 

Year-on-year, the basket of consumer prices rose 0.8% (0.9% was forecast). 

Excluding the volatile costs of food and energy, so-called core CPI rose 0.1% month-on-month, and 2.2% year-on-year. 

Economists had forecast that core inflation rose 0.2% month-on-month, and 2.3% year-on-year. 

Core inflation compared to the prior year has been running hot and above the Fed's 2% target since last December. Much of this gain has been due to a jump in shelter costs, which make up 32% of the overall consumer price basket. 

The shelter index was little changed in July, climbing 0.2%. Personal consumption expenditures are the Fed's preferred gauge of inflation.

"Though CPI today is not a make or break number for the Fed’s decision to hike in September (we think they will hike once in December), there are certain components of the print that bear close watching" including shelter, said Aaron Kohli, BMO Capital Markets fixed income director, in a preview.

"There is a risk that if rents start to soften, that we will see that stability in core over 2% also disappear."

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