July inflation slows; industrial output gains

WASHINGTON - A big drop in the cost of gasoline in July contributed to the smallest rise in consumer prices in eight months, and industrial output posted a solid gain.

Consumer prices edged up 0.1 percent last month, the smallest advance since prices registered flat in November, the Labor Department reported yesterday. Core inflation, which excludes volatile energy and food costs, was also well-behaved, rising 0.2 percent, the same as June.

Meanwhile, the Federal Reserve said industrial output rose 0.3 percent in July, following 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 risen by that percentage.

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

The increase in industrial output was in line with expectations. Analysts say they 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.

The federal government also said yesterday that prices for food, rent and electricity rose in the last year in the Philadelphia area but that gasoline prices fell sharply. Food prices rose 3 percent in the last year. But prices for beef and veal, fresh fruit and seafood have weakened in the last month, the Bureau of Labor Statistics said.

Two other reports yesterday showed that housing remained under pressure. The National Association of Realtors said home sales in the second quarter fell in 41 states, including Pennsylvania, New Jersey and Delaware, 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 hot sales areas that have been hit hard by the 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 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 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.

For July, energy prices fell 1 percent. It was the second straight decline in energy costs and was the biggest one-month drop since January.

Food costs were up 0.3 percent, compared with a 0.5 percent jump in June. The slowdown was helped by falling prices for beef, poultry and vegetables.