Consumer Prices Rise Slightly Less than Expected in July

U.S. consumer prices rose slightly in July as gasoline and food prices increased marginally, but a solid gain in shelter costs suggested inflation pressures were stabilizing enough to support expectations of an interest rate hike this year.

The Labor Department said on Wednesday its Consumer Price Index edged up 0.1 percent last month after advancing 0.3 percent in June, marking the sixth straight month of increases.

In the 12-months through July, the CPI climbed 0.2 percent.

It was the second month the annual CPI increased after plunging crude oil prices pushed it into negative terrain in January.

Signs of an ebb in the disinflationary trend, combined with a tightening labor market and strengthening housing sector could give the Federal Reserve confidence that inflation will eventually rise toward its 2 percent target.

The U.S. central is expected to raise its short-term interest rate next month. But given that inflation will likely remain tame because of a strong dollar, renewed weakness in oil and commodity prices, as well as China's devaluation of the

yuan, the pace of monetary policy tightening is likely to be

gradual.

Economists polled by Reuters had forecast the CPI rising 0.2 percent from June and gaining 0.2 percent from a year ago.

The so-called core CPI, which strips out food and energy costs, ticked up 0.1 percent last month after rising 0.2 percent in June. Shelter, which recorded its biggest increase in nearly 8-1/2 years, was the main contributor to last month's rise in the core CPI.

In the 12 months through July, the core CPI increased 1.8 percent. It was the fourth time in five months that the 12-month change was 1.8 percent.

Last month, gasoline prices rose 0.9 percent after rising 3.4 percent in June. Food prices gained 0.2 percent, slowing from a 0.3 percent increase in June as the impact of the bird flu on egg prices eases.

Egg prices rose only 3.3 percent after a June's 18.3 percent surge, which had been the biggest gain since August 1973. The index for shelter increased 0.4 percent, the largest increase since February 2007, after advancing 0.3 percent in

June. Declining homeownership and a rental vacancy rate near a 22-year low is driving rents higher.

There were increases in the cost of medical care and apparel, which had declined for three straight months. However, airline fares fell 5.6 percent, the largest decline since December 1995. Prices for used cars and trucks and household furnishings and new motor vehicles fell.

((Reporting by Lucia Mutikani; Editing by Andrea Ricci))