Key US inflation measure sees modest July gain

WASHINGTON: A closely watched measure of US inflation posted only a token increase in July, as low fuel costs continue to weigh on prices, according to data released Thursday.

The weak reading for the Federal Reserve's preferred inflation measure could add to disagreements among central bankers who are split over the need to raise the key interest rate a third time this year.

The Personal Consumption Expenditures price index rose 0.1 percent in July after seeing no change in June, matching analyst expectations, the Commerce Department reported.

But the 12-month measure remained steady at 1.4 percent, the same as June, and well below the Fed's two percent target.

Energy decreased by 0.1 percent for the month, but even excluding the volatile food and fuel categories, the "core" PCE index still gained 0.1 percent, the same as May and June.

And the 12-month core measure actually fell a tenth of a point to 1.4 percent -- the third decrease in this measure so far in 2017. It has undershot the Fed's two percent target for more than five years.

The report also showed Americans' incomes rising slightly faster than their spending for the month.

Personal income rose 0.4 percent in July, or $65.6 billion, while spending increased 0.3 percent, or $44.7 billion.

After nearly seven years of uninterrupted job creation and economic recovery, the absence of inflation has flummoxed economists, since falling unemployment should spur wages and prices.

The Fed has said it expects inflation to stabilize near its two percent target over the medium term.

But according to minutes from the most recent monetary policy meeting, some central bankers now believe the United States is settling in for a new era of low inflation.

Some argued that, after raising rates twice in 2017, the Fed can afford to "be patient" before approving another increase.

Analysts said the healthy increases in spending and the fall in the savings rate -- at 3.5 percent it was the smallest since December -- would support GDP growth in the third quarter.

However, Chris Low of FTN Financial said the Fed would find scant grounds for a rate hike in December.

"Spending picked up in June and July because inflation is tame," he wrote in a research note.

"It's hard to imagine tightening given this combination of spending and inflation."