WASHINGTON – Consumer inflation accelerated in July as a big jump in gasoline and other energy prices offset the biggest decline in clothing costs in nearly two decades.
The Labor Department reported Wednesday that its closely watched Consumer Price Index rose by 0.4 percent last month, double the 0.2 percent increase in June. While energy costs had fallen in June, they rose by 2.9 percent last month, the biggest increase in three months.
Core inflation, which excludes food and energy, slowed in July, rising by just 0.2 percent after four straight months of 0.3 percent gains. This slowdown, which was helped by a 1.2 percent drop in clothing prices, was likely to encourage officials at the Federal Reserve, who are counting on a slowing economy to reduce inflation pressures.
Financial markets staged a big rally on Tuesday after the government reported that core inflation at the wholesale level actually fell by 0.3 percent in July.
Investors are hoping that the Fed will not feel the need to push interest rates any higher to slow inflation. Last week, the central bank left rates unchanged, breaking the longest run of uninterrupted rate increases in Fed history.
In other economic news, the Commerce Department reported that construction of new homes fell in July for the fifth time in the past six months, providing further evidence that the once-booming housing market is slowing.
The Commerce Department reported Wednesday that homes were being built at a seasonally adjusted annual rate of 1.795 million units in July, down by 2.5 percent from the June construction pace.
It was the slowest building pace for new homes since November 2004 and provided further evidence that the housing industry, after enjoying five boom years, has slowed substantially this year under the impact of rising mortgage rates.