July's unchanged reading in the CPI followed two straight monthly increases of 0.2%, while in the 12 months through July, the CPI rose 0.8% after increasing 1.0% in June. The so-called core CPI , which strips out the volatile food and energy prices, edged up 0.1% in July after rising 0.2% in each of the previous three months. The year-on-year core CPI increased 2.2% in July after advancing 2.3% in June.
With rents and healthcare costs continuing to rise, we do not expect July's moderation in underlying to be sustained. Medical care costs climbed 0.5% last month, adding to June's 0.2% gain. There were also increases in the costs of hospital services, doctor visits and prescription medicine. Americans got some relief from gasoline prices, which dropped 4.7% last month, the first decline since February.
In a separate report the Fed said US industrial production shot up 0.7% last month after rising 0.4% in June. Production was boosted by a 0.5% jump in manufacturing output, the largest gain since July 2015.
In a third report, the Commerce Department said housing starts increased 2.1% to a seasonally adjusted annual pace of 1.2 million units in July, the highest level since February. Last month's increase in groundbreaking activity supports the view that investment in residential construction will rebound after slumping in the second quarter for the first time in more than two years.
Following the industrial production and housing starts data, the Atlanta Fed raised its third-quarter GDP growth estimate by one-tenth of a percentage point to a 3.6% annual rate.
Dennis Lockhart of the Atlanta Fed, a centrist on policy who does not vote on the Federal Open Market Committee this year, said he is not ruling out action in September. "If the meeting were today, I think the economic data would justify a serious discussion" of whether to raise rates now, he said, adding two rate hikes in 2016 is "conceivable." Lockhart said he was not locked in to a particular date to hike but he cited ongoing job gains and "healthy" signs that will pick up as possibly justifying a September move.
New Fed President William Dudley said that as the US labor market tightens and as evidence builds of wage gains, "we're edging closer towards the point in time where it will be appropriate I think to raise interest rates further." He said the could possibly raise US interest rates as soon as September.
Dudley, a permanent voter on rates and a close ally of Fed Chair Janet Yellen, gave the market-moving interview nine days before the annual meeting of top central bankers in Jackson Hole, Wyoming, a venue the Fed often uses to telegraph policy plans. traders raised bets of a September hike to 18%, from 9% on Monday, with a 51% chance of a December move. We expect a rate hike in December.
The EUR/USD stays strong despite hawkish comments from the Fed. The EUR/USD cleared numerous hurdles yesterday, including the August 2 high, 100-dma, 61.8% of the June 24 range and the daily cloud top. Such a move is a strong signal for the currency bulls. We keep our strategy to buy EUR/USD on dips. Our bid is at 1.1160, near the 14-day .
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