Consumer prices flat in July

WASHINGTON — Consumer prices were flat in July as energy costs retreated after 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 change 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 country has not experienced since the Great Depression of the 1930s. However, most analysts think the Federal Reserve has responded aggressively enough to battle the current downturn and prevent outright deflation.

On Wall Street, though, stocks fell sharply Friday as investors were disappointed by reports that the Reuters/University of Michigan index of consumer sentiment fell sharply in the first part of this month. Consumer spending is crucial for the economy to emerge from recession, because it accounts for about 70 percent of economic activity.

On Friday, the Fed said that production from the nation's factories, mines and utilities rose in July for the first time in nine months, driven by increased output from auto companies. Industrial production rose 0.5 percent in July, better than the 0.3 percent gain that economists expected. Production of vehicles and parts rose 20.1 percent, after falling for three straight months.

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 a gallon, up from $2.50 a month ago but well below the record high of $4.11 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.

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.