Inflation was "benign" last month in the face of risks — and promising flickers of hope — on the economic road ahead, a Wells Fargo economist said Tuesday.
The cost of living along the Wasatch Front nudged slightly higher in July, at a nonseasonally-adjusted rate of 0.1 percent, according to a report released by Wells Fargo Bank. Declines in the cost of transportation, down 0.4 percent, and clothing, down 0.8 percent, balanced a modest increase in the cost of groceries, which rose 1.5 percent.
Nationally, economic reports out Tuesday showed that consumer prices unexpectedly dipped for the first time in eight months, while new housing starts jumped 8.3 percent and industrial production inched 0.4 percent higher.
The July jump in housing starts led to an annual pace of 1.978 million new units, according to the U.S. Commerce Department. Building permits, a sign of future activity, also increased.
But most of the focus Tuesday was on the cost of living report, which helped boost the stock market.
The Dow Jones industrial average rose 18.28, or 0.2 percent, to 9,972.83. Broader stock indicators were moderately higher. The Standard & Poor's 500 index was up 2.37, or 0.2 percent, at 1,081.71, and the Nasdaq composite index gained 12.41, or 0.7 percent, to 1,795.25.
"It's just a nice, calm inflation environment," said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York.
The U.S. Consumer Price Index declined 0.1 percent in July, compared to a 0.3 percent increase in June, the U.S. Labor Department reported. The core rate, which excludes food and energy, rose 0.1 percent, same as the month before.
Energy prices fell 1.9 percent in July, the first decline since November, after a 2.6 percent increase the month before. Gasoline prices last month fell 4.2 percent, the biggest drop since prices fell 5.1 percent in November, after a 3.1 percent rise in June.
National food prices rose 0.3 percent, along with prices for services like medical care, household operations and transportation. Housing costs, which include some energy costs, rose 0.2 percent last month after rising 0.3 percent in June.
Chris Neddo, portfolio manager at Wells Capital Management in Salt Lake City, called July's economy "benign."
"Everything has been kept in check," Neddo said. "The big 'X factor' in the outlook for inflation might be energy prices."
While consumers along the Wasatch Front and nationally enjoyed some relief at the pump in July in gas prices, Neddo said the price of unrefined crude oil remains high. Last week saw the price of crude scale new heights, nearing $50 per barrel.
"This disconnect between the price of crude and the price of gasoline at the pump appears to be tied to fears of supply shortages, not actual shortages," Neddo said. A "risk premium" appears to be built into the price of crude oil, such as a terrorist risk premium, and a premium based on concerns over the stability of oil supplies in Venezuela and Russia.
Risk and the price of crude oil also seem to be impacting the stock market, according to Wells Capital senior portfolio manager Bonnie Newman.
"The equity market sure seems to be all about oil prices lately," Newman said. "You can have a day when you have positive economic numbers come out, or positive news from corporations or companies, but if oil prices are going up that day, the equity market seems to trade more in line or trend lower based on those oil prices."
Newman said there may be a $10 to $15 premium in the per-barrel price of oil today, based on the fear factors Neddo mentioned — factors which also seem to be affecting both the bond and equity markets.
If the country can ride out those risks, and if there are no disruptions at the Olympics, Republican National Convention or the presidential election, Newman said those premiums should start to come down. Until then, she said, transportation prices are likely to remain high.
"Some of the economic numbers on the national basis have indicated that we've hit kind of a soft patch in the economy in the past month or so," Newman said. "That's typical. In most economic cycles or recoveries you'll hit points of acceleration, but then you'll hit some stalls, to be followed by accelerations and stalls. Nothing moves in a straight line."
The Federal Reserve reported Tuesday that U.S. industrial production rose 0.4 percent in July, led by manufactures of business equipment such as computers and semiconductors. The increase was the third in four months. Production had fallen 0.5 percent in June. U.S. industry operated at 77.1 percent of capacity last month, compared with 76.9 percent in June.
"We are seeing positive growth numbers and tame inflation — that's a pretty good mix," said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Conn.
E-mail: jnii@desnews.com