Pump drop eases price pressure

(AP) A big drop in the cost of gasoline in July contributed to the smallest rise in consumer prices in eight months, while industrial output posted a solid gain.

Consumer prices, which had been surging earlier in the year, edged up a tiny 0.1 percent last month — the smallest advance since prices were flat last November, the Labor Department reported yesterday. Core inflation, which excludes volatile energy and food, was also well-behaved. It rose by just 0.2 percent, the same as June.

Meanwhile, the Federal Reserve said that industrial output rose 0.3 percent in July after a 0.6 percent increase in June. The increase last month was led by a solid 0.6 percent increase in manufacturing, the second straight month that factory output has increased by this level.

Output in mining, which includes oil production, rose by 0.7 percent but output at the nation’s utilities fell by 2.7 percent last month.

The increase in industrial output was in line with expectations. Analysts believe that U.S. factories, after being hit by a slowdown late last year, are starting to revive the economy despite continued troubles in the housing sector.

Two other reports yesterday showed that housing remained under pressure. The National Association of Realtors said that home sales fell in 41 states in the second quarter compared with the same period a year ago. The declines were led by drops of 41.3 percent in Florida and 37.5 percent in Nevada, two previously brisk sales areas that have been hard hit by the current slump.

And the National Association of Home Builders said its monthly survey of builder confidence fell to 22 in August, its lowest level in more than 16 years, as rising problems in obtaining home loans dampened sales prospects.

The performance of consumer inflation in July was in line with Wall Street expectations and should bolster investors’ hopes that declining inflation pressures will give the Federal Reserve room to cut interest rates if needed to deal with the recent turbulence in stock and credit markets.

The report on the Consumer Price Index, the most closely followed inflation barometer, showed that consumer prices have been rising at a seasonally adjusted annual rate of 4.5 percent so far this year — up from a 2.5 percent increase in prices for all of 2006.

However, that acceleration has been concentrated in energy and to a lesser extent food prices, which have been pushed higher because of growing demand for corn to produce ethanol.

Energy prices, which rose 2.9 percent for all of 2006, have been soaring at an annual rate of 21.3 percent through the first seven months of this year. Food costs have been rising at a rate of 5.7 percent this year, compared with an increase of 2.1 percent for all of last year.

Those sharp increases thus far have not caused more widespread inflation troubles. Core inflation, which excludes food and energy, is up 2.3 percent so far this year, even better than last year’s 2.6 percent increase.