MercoPress. South Atlantic News Agency

July US consumer prices fall 0,1%

United States consumer prices fell by 0,1% during July, the first since November 2003 according to the latest release from the Labor Department. Most analysts were expecting a 0,1% rise after the 0,3% jump of June.

Subjacent inflation (core prices) which excludes volatile prices of fuel and food actually rose 0,1% in July. Consumer prices rose at an annual rate of 4,1% during the first seven months of 2004, sharply higher than the 1,9% of all 2003. In the last twelve months consumer prices in the US have risen 3% while core inflation 1,8%.

The unexpected drop was pushed by lower gasoline, clothing and transport prices.

Consumer spending which is equivalent to 70% of US GDP actually dropped during the second quarter of 2004 as the economy bottomed to a three year low given the significant reduction in car sales and other durable goods.

These numbers will have an impact in the coming decision of the Federal Reserve that last July and in August decided a slight increase in basic interest rates, the first in over four years, anticipating what was forecasted as a robust economic recovery with potential inflationary acceleration.

In the first seven months of 2004 consumer prices rose at an annual 4,1% compared to 2,1% in 2003, while core prices expanded at an annual rate of 2,4% compared to 2,1% last year.

However other reports released this Tuesday by the Federal Reserve seem to indicate that the June economic weakening might only be temporary. US factories, mines and utilities output rose at their highest capacity in three years and industrial production rose 0,4% in July reversing the 0,5% drop in June. The construction industry also rebounded in July by 8,3% compensating the June decline.