Consumer prices hit biggest decline in 15 years

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WASHINGTON (AP) Consumer prices in July registered the biggest decline in 15 years, pushed down by a sharp drop in the cost of gasoline and other energy products.

The 0.3 percent decrease in the Labor Department's Consumer Price Index followed a 0.2 percent increase in June. Many analysts had predicted a 0.1 percent drop last month.

''Inflation is flat on its back,'' declared Bill Cheney, chief economist at John Hancock Financial Services.

The good news was not enough to overcome other concerns for investors, and stock prices fell. The Dow Jones industrial average was down 34 points and the Nasdaq index was down 28 points by late morning.

Housing construction rose by 2.8 percent in July to an annual rate of 1.67 million, the best showing in 17 months, the Commerce Department said. The housing market has been a main pillar supporting the struggling economy.

And, the number of workers filing new claims for state unemployment insurance fell by a seasonally adjusted 8,000 to 380,000 last week, suggesting that the flurry of layoffs seen recently may be moderating.

The more stable four-week moving average of claims, which smoothes out weekly fluctuations, also fell to 370,750, its lowest point since early March.

In an effort to keep the economy out of recession, the Federal Reserve has slashed interest rates six times this year, totaling 2.75 percentage points. One of the reasons the Fed has been able to act so aggressively is because inflation hasn't posed a risk to the economy.

Even with Thursday's report showing inflation is low, many economists predict Fed policy-makers will cut rates by a quarter point when they meet Tuesday, rather than by a bolder half-point.

A 5.6 percent plunge in energy prices also the largest since April 1986 accounted for much of the good inflation news for July. That came on top of a 0.9 percent decline in energy prices in June.

Gasoline prices plummeted by 11 percent in July. Nationwide average prices at the pump have tumbled since peaking on May 18 at $1.76 a gallon as refiners rushed to fill shortages that developed during the spring.

Natural gas prices, which posted a record decline in June, fell by 4.1 percent in July. Home-heating oil went down by 2.8 percent.

After soaring by a record 3.8 percent in June, electricity prices eased in July, rising 0.6 percent. That comes as residents of California cope with a power crisis caused by shortage of electrical generating capacity.

The retreat in energy prices spilled over into lower airfares, which fell by 0.2 percent in July.

Food prices edged up 0.3 percent in July, after a 0.4 percent increase. Higher prices for vegetables, dairy products, poultry and pork outweighed lower prices for fruits and beef.

Clothing prices declined by 0.6 percent in July as retailers discounted merchandise to lure shoppers.

The costs for medical care, including doctor visits and prescription drugs, rose by just 0.1 percent in July, the smallest increase since July 1997.

Prices for tobacco shot up by 4.8 percent, the largest increase since September 1999. Companies have been raising prices to cover the costs of legal settlements.

Last week the government reported wholesale prices plunged by 0.9 percent in July, the largest decline in eight years. A sharp drop in the costs of gasoline and other energy products led the way.

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