By Lucia Mutikani
WASHINGTON, Aug 12 (Reuters) - U.S. consumer prices likely increased moderately in July, which could further reduce financial market expectations for the Federal Reserve to raise interest rates this year.
The Labor Department's Consumer Price Index report on Wednesday would follow on the heels of news last week of surprise job losses last month. Economists said the United States' position as a net oil exporter and the drawing down of petroleum inventories had cushioned the hit on the economy from the oil price shock sparked by the Middle East conflict.
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Still, they viewed inflation risks as tilted to the upside, with no resolution to the U.S.-Israeli war with Iran. President Donald Trump accused Iran of being "devious negotiators" in an interview released late on Monday and described some of his current options in the war — "just bop along" and let Tehran fail economically or hit them "really, really hard."
"I don't expect any significant firework when the numbers come out," said Sung Won Sohn, a finance and economics professor at Loyola Marymount University. "I don't really see the Fed either raising or lowering interest rates, unless things turn out badly for both unemployment and the CPI."
The CPI likely rebounded 0.1% last month, a Reuters survey of economists predicted, after falling 0.4% in June - the first decline in six years. In the 12 months through July, the CPI was forecast to have increased 3.4% after advancing 3.5% in June.
The anticipated small monthly increase in the CPI would reflect a further decline in gasoline prices, which averaged $4.064 a gallon in July compared to $4.184 in June, according to data from the Energy Information Administration. Gasoline prices have dropped from an average of $4.609 a gallon in May.
Food prices likely increased marginally, in line with their recent trend. Goods prices, including household furniture and apparel amid the fading pass-through from tariffs, will likely account for the moderate rise in the CPI.
Outside the volatile energy and food components, the CPI was forecast to rise 0.2% last month after being unchanged in June. That would translate to a year-on-year increase of 2.5% in the so-called core CPI inflation.
The U.S. central bank tracks the Personal Consumption Expenditures price indexes for its 2% inflation target. While cooler inflation readings could further temper rate hike expectations, they would likely be of little comfort to consumers, with wages not keeping up with prices.
