Inflation Disappears In July As CPI Remains Unchanged

Consumer prices were flat in July as energy costs retreated following a big surge in June. Over the past 12 months, prices dropped the most in nearly six decades as the recession and lower energy costs kept a lid on inflation.

The Labor Department said Friday that consumer prices showed no changed in July, in line with analysts' expectations and far below the 0.7 percent jump in June.

Prices fell 2.1 percent over the past 12 months, the biggest annual decline since a similar drop in the period ending in January 1950. Most of the past year's decline reflects energy prices falling 28.1 percent since peaking in July 2008.

Some economists have expressed concerns that the economy could be headed toward a dangerous period of falling prices, something the U.S. has not experienced since the Great Depression of the 1930s.

However, most analysts believe the Federal Reserve has responded aggressively enough to battle the current downturn and keep outright deflation from occurring.

The Fed wrapped up a two-day policy meeting on Wednesday with a pledge to continue keeping interest rates low for an extended period. Most analysts don't expect the first Fed rate increases until next year after the unemployment rate peaks.

Core inflation, which excludes energy and food, showed a small 0.1 percent rise in July, matching economists' forecasts and down from a 0.2 percent rise in June. Over the past 12 months, core inflation is up 1.5 percent, right in the Fed's comfort zone for price increases.

In July, energy costs fell 0.4 percent after having surged 7.4 percent in June, which reflected a big rise in the cost of gasoline and other energy products.

Gas prices, on a seasonally adjusted basis, fell 0.8 percent in July. The average price at the pump is $2.65 per gallon, up from $2.50 a month ago but well below the record high of $4.11 hit a year ago.

Food costs dropped 0.3 percent in July reflecting declines in a number of categories led by a 0.6 percent fall in the cost of dairy products.

Wal-Mart Stores Inc. on Thursday reported its first-ever drop in same-store sales for its overall U.S. business for the quarter. The world's largest retailer said a big factor was price deflation, primarily in grocery products like dairy.

Airline fares rose 2.1 percent in July, while clothing costs jumped 0.6 percent.

The longest recession since World War II has kept prices in check as wage pressures disappeared because of heavy job layoffs. Companies have been unable to boost prices because of weak demand.

While the Fed and private economists believe the overall environment for inflation is benign, there have been examples of scattered price increases.

Railroad operator CSX Corp. says it expects to raise prices this year, partly because shippers don't have any alternatives. And some food companies, including Kellogg Corp. and Kraft Foods Inc., have raised prices to keep up with cost increases in ingredients. But to keep cost-conscious customers from straying, they are offering more promotions like buy-one-get-one-free.