WASHINGTON - Consumer prices shot up in July, reflecting higher prices for gasoline and other energy products while output at the nations' factories, mines and utilities slowed sharply.
The Federal Reserve reported that industrial production rose just 0.1 percent last, the weakest showing in three months. Output increases at factories and utilities slowed after big gains in June while mining output actually fell.
The overall increase was below what economists had been expecting but they are still looking for solid gains for the rest of the year as factories boost production to restock depleted store inventories.
Meanwhile, the Labor Department reported that its closely watched Consumer Price Index rose 0.5 percent in July, the biggest increase in three months. In July, overall inflation was driven higher by a big 3.8 percent jump in energy costs.
However, outside of food and energy, prices remained well behaved. The core inflation rate edged up by just 0.1 in July. This price category, which is closely watched by the Federal Reserve, was helped in July by a 1 percent drop in new car prices, the biggest one-month decline in more than 30 years.
In another report, the Commerce Department said construction starts on new homes and apartments fell a slight 0.1 percent in July, a possible sign that the red-hot housing market is beginning to cool off.
The decline left housing construction at a seasonally adjusted annual rate of 2.042 million units last month.
The report on industrial production showed a tiny 0.1 percent gain in output at factories, below the 0.4 percent increase in June. Output at utilities rose by 0.7 percent following a giant 4.6 percent jump in June that reflected a return of hot weather that increased demand for electricity. Output at mines, a category that includes oil drilling, fell by 1.3 percent in July, the second decline in the past three months.
Analysts said the big 0.5 percent overall increase in consumer inflation last month was not as serious as it might first appear because outside of energy, prices remained well contained.
"Energy is a killer, but if you don't use it, you're not seeing a whole lot of inflation," said Joel Naroff, chief economist at Naroff Economic Advisors, a consulting firm in Holland, Pa.
So far this year, inflation is rising at a moderate annual rate of 3.5 percent as the explosion in energy costs has not yet triggered underlying inflation pressures. The core rate of inflation, excluding food and energy, is rising at an annual rate of just 2.2 percent so far this year.
But the soaring costs of fuel could have an adverse impact on the economy ultimately if consumers pressed by this higher expense cut back on their spending elsewhere.
The overall moderation in inflation pressures has allowed the Federal Reserve to keep pushing interest rates up gradually rather than being forced to switch to a more aggressive credit tightening. The Fed increased a key interest rate last week for a 10th time over the past 14 months. Economists expect more interest rate increases to follow.
For July, energy costs shot up by 3.8 percent, with gasoline prices rising by 6.1 percent as the pain motorists have been feeling at the pump was mirrored in government statistics.
Energy costs had fallen in May and June after rising sharply in the previous three months. However, the May and June price declines were reversed in recent weeks as global oil prices shot up to new record highs.
Analysts said motorists can expect more price jumps to come as gasoline pump prices have continued to rise in August with the pump price hitting $2.55 per gallon, the Energy Department reported Monday.
Food costs were up a moderate 0.2 percent in July even though the cost of fruits jumped by 2.8 percent.
The moderation in core inflation in July was helped by a huge 1 percent decline in new car prices, reflecting the attractive discounting automakers provided last month to help clear out a backlog of unsold cars.