US consumer prices dropped in July for the first time in eight months as a sharp run up in energy costs reversed, according to a report showing inflation pressures largely in check.
A separate report showed new house building increased at the fastest rate in nearly two years last month, making up almost all the ground lost in a June slump.
The consumer price index, the most widely used gauge of US inflation, slid 0.1 per cent in July, the Labor Department said. It was the first decline since a 0.2 per cent drop in November.
The so-called core CPI, which strips out volatile food and energy costs, inched up 0.1 per cent as a big jump in lodging costs largely offset drops in prices for apparel, recreation and education and communication. New car prices also fell.
Economists had expected the CPI to rise 0.1 per cent with the core rate up 0.2 per cent.
The tame readings were warmly received on Wall Street as traders guessed the US Federal Reserve would not need to push interest rates aggressively up to head off inflation. US bond prices climbed, the dollar sagged and stock futures rallied.
The biggest cloud on the inflation horizon has been oil prices and although US consumers felt some energy price relief in July, this could be short-lived.
US crude prices closed at a record high $46.58 on Friday, although they have eased this week. Benchmark light crude was trading around $45.73 a barrel early on Tuesday.