INSTANT VIEW: Consumer inflation unchanged in July

NEW YORK (Reuters) - U.S. consumer prices were flat in July versus June as expected, but fell over the past 12 months by the most since 1950, government data showed on Friday.

KEY POINTS: * The Labor Department said its Consumer Price Index was unchanged after rising 0.7 percent in June, in line with market forecasts for a flat reading. * Gasoline prices fell 0.8 percent after jumping 17.3 percent the previous month, helping to keep overall prices contained. The food index declined 0.3 percent, the biggest fall since May 2002, after being flat in June, while prices for apparel and new vehicles rose in July. * Compared to the same period last year, consumer prices fell 2.1 percent, the largest decline since January 1950. * Stripping out volatile energy and food prices, the closely watched core measure of consumer inflation rose 0.1 percent in July after increasing 0.2 percent in June. That was also in line with market expectations for a 0.1 percent gain. * Compared to July last year, the core inflation rate rose 1.5 percent, the slowest advance since February 2004, after increasing 1.7 percent in June.

COMMENTS:

T.J. MARTA, CHIEF MARKET STRATEGIST, MARTA ON THE MARKETS,

SCOTCH PLAINS, NEW JERSEY:

"Looking at the month-over-month figure, it is bang on. However, the real benign number is the year-over-year. I discount the year-over-year overall CPI because it basically reflects energy prices last year. The real important number is the year-over-year core CPI. We have not seen 1.5 percent since February 2004.

"This very much corroborates the Federal Reserve's relaxed inflation stance. What it means is that, especially for the front-end of the curve, yields will head lower. We are probably going to see the two-year yield test 1 percent. The federal funds futures will probably retrace from calls for a Federal reserve hiking of interest rates."

JAMIE COX, MANAGING PARTNER AT HARRIS FINANCIAL GROUP, COLONIAL

HEIGHTS, VIRGINIA:

"These CPI data are distorted because we have seen such dramatic fluctuations in the data for year-over-year. Commodities, oil for example, have had an unbelievably wild ride over the last year."

"I think you will have to wait a couple of months to see whether the data are indicating inflation or not."

TERRY MORRIS, SENIOR VICE PRESIDENT AND SENIOR EQUITY MANAGER,

NATIONAL PENN INVESTORS TRUST COMPANY, READING,

PENNSYLVANIA:

"Its pretty much as expected so I view it as a non-event. It is a sign that inflation is not a threat yet, there's been some talk of inflation down the road, I think that's premature. The fact that it didn't disappoint is a good thing. It's something to be optimistic about, it's another sign that we may be turning a corner."

MARKET REACTION: STOCKS: U.S. stock index futures fell. BONDS: U.S. Treasury debt prices rallied slightly. DOLLAR: U.S. dollar fell against the yen.