Consumer Prices Flat From June

WASHINGTON -- U.S. consumer prices fell last month at their fastest annual pace since 1950, an indication that inflation isn't a threat to the economy or the Federal Reserve.

The consumer price index was unchanged on a monthly basis in July from June, the Labor Department said Friday, matching economist expectations, according to a Dow Jones Newswires survey.

The core CPI, which excludes food and energy prices, rose 0.1%, which was also in line with expectations.

Unrounded, the CPI posted no change last month. The core CPI advanced 0.091% unrounded.

Consumer prices plunged 2.1% compared to one year ago, the largest 12-month decline since January 1950. Most Fed officials think a positive inflation rate around 2% is consistent with their dual mandate of price stability and maximum employment.

While energy and commodity prices have risen recently, "substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time," the Fed said in a policy statement Wednesday. That view appears supported by Friday's CPI report.

With inflation under control and the economy still quite sluggish -- even if the worst of the downturn appears to be over -- the Fed is expected to hold interest rates near zero into 2010.

Annual inflation was above 5% as recently as August 2008, before last year's energy and commodity price drops kicked in and the global recession eased pressure on import prices.

But annual inflation rates should start turning positive later this year given the rise in energy prices earlier in 2009 and an apparent resumption in global growth.

Meanwhile, the less-volatile core CPI index was up 1.5% in July from one year ago, which is more in line with the Fed's objectives.

According to Friday's CPI report, energy prices fell 0.4% in July from June, and were down 28.1% over the last 12 months. Gasoline prices fell 0.8% last month, while food prices slid 0.3%.

Transportation prices, meanwhile, increased 0.2%. Airline fares increased 2.1%, while new vehicle prices rose 0.5%.

Housing, which accounts for 40% of the CPI index, fell 0.2%. Rents were unchanged, as was owners' equivalent rent. Household fuels and utilities prices slid 0.1%. Lodging away from home fell 2.1%.

In a separate report, the Labor Department said the average weekly earnings of U.S. workers, adjusted for inflation, rose 0.4% in July from June.