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Housing starts jump 15.7% to 8-month high, suggesting recovery back on track

| Wednesday, Aug. 20, 2014, 12:01 a.m.

Housing starts surged to an eight-month high in July, suggesting the nation's housing market recovery is back on track after stalling in the second half of last year.

While the rebound points to sustained economic strength, other data on Tuesday showed inflation largely under wraps, which could give the Federal Reserve room to maintain its ultra-easy monetary policy stance for a bit longer.

“The Fed will find these data further supportive of the go-it-slow approach to exiting its accommodative policies,” said Dan Greenhaus, chief strategist at BTIG in New York.

Groundbreaking for housing jumped 15.7 percent last month to a seasonally adjusted 1.09-million-unit annual pace, the highest level since November, the Commerce Department said. The gain snapped two consecutive months of declines and beat economists' expectations of a rise to only a 969,000-unit rate.

It was the latest sign the market is regaining its footing after being slammed by a run-up in interest rates last year. A shortage of properties for sale has lifted prices, pushing housing out of the reach of many first-time buyers.

Separately, the Labor Department said its Consumer Price Index edged up 0.1 percent last month as declining energy costs partially offset increases in food and rents. The CPI had increased 0.3 percent in June.

In the 12 months through July, the CPI increased 2.0 percent after advancing 2.1 percent in June.

While the so-called core CPI, which strips out volatile food and energy costs, ticked up 0.1 percent for a second consecutive month, economists said there is no evidence the underlying trend in inflation is shifting lower. Rents, which account for more than a third of the CPI basket, increased 0.3 percent in July and were up 2.9 percent from a year ago.

In the year through July, the core CPI was up 1.9 percent.

The Fed targets 2 percent inflation, but it tracks an index that is running lower than the CPI.

Most economists do not expect the central bank to raise benchmark rates until around the middle of next year, given sluggish wage growth. It has kept rates near zero since December 2008.

Average weekly earnings adjusted for inflation rose 0.3 percent year-on-year in July after a 0.2 percent dip in June, the Labor Department said.

“Fed Chair (Janet) Yellen considers income growth as the key to future inflation issues, and since she doesn't see any wage gains just yet, she will likely continue on course,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa.

“As for investors, limited inflation and stronger housing are nothing but good news since they imply good growth ahead without the Fed having to move prematurely.”

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