Consumer prices spiked by 0.5 percent in July -- the most in three months -- pushed up largely by soaring fuel and gas costs, a government report showed. Without counting rising energy and food costs, however, the prices paid by American consumers rose less than expected, indicating that relentlessly climbing fuel costs are not yet boosting inflation in the country.
Housing starts, meanwhile, stayed mostly flat, but at a very high level, while building permits -- a good indicator of future construction -- surged, indicating that the nation's new housing market is still strong and will stay strong in the near future.
U.S. housing starts fell a tiny 0.1 percent in July from a four-month high in June, according to figures from the Commerce Department. At the same time, building permits rose to their highest level in 32 years -- 2.167 million housing units a year.
"It's a pretty tranquil inflation environment," said Ken Mayland, president of ClearView Economics LLC, an economic research and consulting firm outside Cleveland, Ohio.
The core inflation rate -- which excludes volatile food and energy prices -- was 0.1 percent in July. Like many analysts, he predicted that even though the inflation rate is still low, the Federal Reserve will continue to raise short-term interest rates to keep inflation in check. "I think the Fed will focus on the headline number, the 0.5 percent rise, rather than the fine print, which is that inflation is still only rising a minuscule amount," Mayland said.
The Federal Reserve increased short-term rates last week for the 10th time in 14 months.
Mayland also predicted that consumer spending will stay strong in the months ahead as new homeowners buy appliances, knick-knacks and furniture for their homes. "Strong housing start numbers create a virtual lock on strong consumer spending for the second half of this year. I predict a strong Christmas selling season," said the economist.
The rise in consumer spending was largely due to increased car sales brought on by a 1 percent drop in new car prices -- the biggest one-month decline in 30 years. Ford Motor Co., DaimlerChrysler AG and General Motors Corp. all offered employee discounts to all new car buyers to counter the surge in gas prices and help clear out old inventory.
The consumer price index is the government's widest gauge of costs for goods and services. Almost 60 percent of the CPI covers what consumers pay for services ranging from medical visits to airline fares to movie tickets.
The strong housing start and permit numbers came amid talk of a slowdown in some housing markets and a potential bubble bursting in the nation's real estate market. Mortgage rates have also risen steadily since late June, stoking the slowdown talk.
"Some analysts have pointed to recent anecdotal evidence that home price increases are beginning to decelerate as a sign that the housing sector is starting to cool," said economist Michelle Girard of investment firm Greenwich Capital Management in an e-mailed report. "This morning's results show no sign of an imminent slowdown. At worst, with starts steady for three straight months, activity may finally be leveling off at historically high levels."