WASHINGTON (Reuters) - Weak energy costs pushed U.S. consumer prices down for a third straight month in June while consumer sentiment dropped to a near one-year low in July, highlighting the sluggishness of the economic recovery.
However, prices excluding food and energy rose 0.2 percent, their largest monthly gain since October, the Labor Department said on Friday. Analysts said that suggested deflation risks were easing and called it further proof the economy was not slipping back into recession."We are seeing some loss of momentum in growth, but it's not the start of a double-dip. The core inflation number should lessen deflation fears, the economic recovery is still intact," said Jim O'Sullivan, chief economist at MF Global in New York.The Consumer Price Index dipped 0.1 percent last month after falling 0.2 percent in May. Analysts had expected consumer prices to hold steady.
Energy prices fell 2.9 percent and food prices were flat.
But a rise in rental costs after months of stagnation allowed the core CPI to move higher. The core rate had risen 0.1 percent in May and markets had expected a similar gain last month.
Analysts said the rental costs' increase was encouraging and reflected a labor market that was starting to create jobs, although at a pedestrian pace.
A second report showed consumer sentiment early this month pulled back from a near 2-1/2 year high on worries about income and jobs. The Thomson Reuters/University of Michigan's consumer sentiment index plummeted to 66.5 from 76.0 in June. That was below market expectations for 74.5.
Prices for safe-haven U.S. government debt rallied as investors viewed the data as suggesting the Federal Reserve would keep interest rates near zero well into 2011. The U.S. dollar fell to a seven-month low against the yen.
The dour confidence report and weak revenues from corporate giants Bank of America , Citigroup and General Electric hammered stocks on Wall Street. Major U.S. stock indices ended down more than 2.5 percent.
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