WRAPUP 4-Gasoline prices dampen US inflation, Fed action eyed

Wed Jul 18, 2012 2:02am IST

* Consumer prices flat in June, up 1.7 percent from year ago
    * Core CPI rises 0.2 percent for fourth straight month
    * Data supports further monetary easing from Fed
    * Homebuilder sentiment scales five-year high in July

    By Lucia Mutikani
    WASHINGTON, July 17 (Reuters) - U.S. consumer prices were
flat in June as the cost of gasoline dropped, offering some
relief for cash-strapped Americans and scope for the Federal
Reserve to ease monetary policy further to help the faltering
recovery.
    Other reports on Tuesday showed confidence among
homebuilders spiked to a five-year high in July and industrial
production rebounded last month. Despite that, the economic
growth trend remains tilted to the weak side, analysts said.
    "There is a growing case for a helping hand from the Fed for
the economy and the recovery. Monetary policy is the only game
in town," said Millan Mulraine, senior macro strategist at TD
Securities in New York.
    Federal Reserve Chairman Ben Bernanke offered few new clues
whether the U.S. central bank was moving closer to a fresh round
of monetary stimulus. He told policymakers the Fed would act if
necessary, to support the economy. 
    The economy has been slammed by fears of steep government
spending cuts and higher taxes next year, and troubles from the
debt crisis in Europe. That has caused a slowdown in job growth
and declines in retail sales over the past three months.
    June's CPI reading was in line with economists' expectations
and followed a 0.3 percent drop in May. Stripping out food and
energy, inflation pressures were also benign. Core CPI rose 0.2
percent for a fourth straight month.
    Overall consumer prices rose 1.7 percent year on year in
June after increasing by the same margin in May. 
    Minutes of the Fed's June meeting released last week showed
it was open to buying more Treasury bonds to spur the economy,
but the recovery would probably need to weaken further for broad
consensus among policymakers.
    The economy grew at a 1.9 percent annual rate in the first
quarter and estimates for the April-June period are converging
around a 1.5 percent pace.
    A second report showed the NAHB/Wells Fargo Housing Market
index - which measures sentiment among homebuilders - jumped to
35 in July, the highest since September 2002, from 29 in June. 
    In a reversal of fortunes, housing is one of the few bright
spots in the economy, with the home price decline having
bottomed in recent months. Still residential construction is
only a fraction of gross domestic product and cannot shoulder
the economic recovery alone. 
    A third report from the Fed showed industrial production
grew 0.4 percent in June, boosted by output at factories,
especially automakers, after slumping 0.2 percent in May.
    However, growth in manufacturing slowed sharply in the
second quarter, expanding at an annual rate of 1.4 percent
during the second quarter, compared with a 9.8 percent pace in
the previous three months. 
    With both domestic and global demand weak, factories will
likely struggle to boost output.
    "Given the weakness in many forward looking manufacturing
indicators such as new orders and the build up of inventories
relative to sales, we expect further slowing, although the June
report suggests a less pronounced path," said Julia Coronado,
chief North America economist at BNP Paribas in New York.
    
    
    RELIEF AT THE PUMP
    Prices for U.S. Treasury debt fell on disappointment over
Bernanke's vagueness on further easing. The dollar eased
marginally against a basket of currencies.
    Stocks on Wall Street ended higher, cheered by above
forecast profits from Goldman Sachs and Coca Cola.
    
    Last month, overall inflation was held back by a 2.0 percent
drop in gasoline prices, offsetting a 0.2 percent rise in food
prices. Gasoline prices at the pump have declined about 53 cents
from their peak around $4 a gallon in April, easing some of the
strain on household budgets.
    However, food prices could accelerate in the months ahead as
half of the country experiences drought. Still, economists said
that was unlikely to prevent further monetary policy easing from
the Fed.
    "The drought has boosted prices for corn, soybeans and
wheat, which should eventually pass through into the CPI, albeit
with a lag," said Michael Hanson, a senior economist at Bank of
America Merrill Lynch in new York.
    "We think Fed officials are likely to look through that as
temporary."
    Subdued inflation and increased working hours last month put
more money into Americans' pockets.
    Average weekly earnings, adjusted for inflation, rose 0.5
percent last month after gaining 0.2 percent in May, the Labor
Department said. Compared with June last year, weekly earnings
were up 0.6 percent.
    Core consumer prices were last month lifted by apparel
prices, which rose for a fourth consecutive month.
    New motor vehicle prices gained for the fifth month in row,
while prices for used cars and trucks were flat after three
straight months of strong gains.
    The cost of medical care rose at its fastest pace since
September 2010, reflecting big increases for hospital and
doctors' services. There were also gains in the cost of tobacco
and recreation.
    Housing costs were muted, with a measure of the amount
homeowners would pay to rent or would earn from renting their
property advancing 0.1 percent in June after gaining by the same
margin in May.
    In the 12 months to June, core CPI increased 2.2 percent
after rising 2.3 percent in May.