Consumer Prices Edge Higher

The core CPI for July climbed 0.2%, matching the estimates of most economists.
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Updated from 9:08 a.m. EDT

Consumer prices rose modestly last month, as energy costs rebounded from a decline in June, but the market remained optimistic that the

Federal Reserve

will hold off on a rate hike at its next meeting.

The Labor Department said Wednesday that on a seasonally adjusted basis, the consumer price index was higher by 0.4% in July. The core index, which excludes changes in food and energy prices, climbed 0.2%.

Both numbers met the consensus forecasts of analysts who had been surveyed by

Bloomberg

.

Energy expenses had fallen 0.9% in June but last month they turned around and increased 2.9%, the government said. The index for petroleum-based energy was up 5%, and the index for energy services rose 0.1%.

The headline CPI showed that prices in July rose at twice the rate of the prior month, when they were up 0.2%. However, the core rate did ease, breaking a string of four straight months of 0.3% increases. The food component ticked up 0.2% in July.

Year over year, consumer prices were up 4.1%, and the core rate was higher by 2.7%.

"Clearly, consumer price inflation remains above

Fed Chairman Ben Bernanke's target range of one to two percent," Peter Morici, a professor at the University of Maryland's business school, said in an emailed statement. "However, the July increase was lower than for previous four months. The decline in July producer prices, less food and energy, reported yesterday indicates consumer inflation should moderate in the months ahead."

Separately, traders also had to factor in a report revealing a decline in housing starts and building permits last month.

The Census Bureau said that privately owned home-construction starts in July fell to a seasonally adjusted annual rate of 1.795 million, down 2.5% from the revised June estimate of 1.841 million. Building permits fell 6.5% from June to an annual rate of 1.747 million.

On the whole, Wall Street is viewing the data, combined with Tuesday's producer price index, as weak enough for the Fed to keep interest rates where they are when policymakers meet next month. Bernanke has predicted a slowdown in the rate of inflation.

Futures markets are now pricing in 10% odds of a rate increase in September, down from a 15% chance one day ago.

Last week, the U.S. central bank left its fed funds target rate at 5.25%, the first time in more than two years that a Fed meeting didn't result in a rate boost. Going back to June 2004, the Fed had lifted rates by a quarter-point at 17 straight gatherings.

A day before the CPI report, the producer price index for July came in much softer than economists had been expecting, giving the market a tremendous lift. Following the PPI report, the

Dow Jones Industrial Average

rose 132 points to 11,230, and the

Nasdaq Composite

jumped 46 points to 2115.

Overall, the PPI rose 0.1% against estimates of a 0.4% increase, but the core rate, again stripping out food and energy, fell 0.3%, whereas economists were looking for a 0.2% upturn.