(Adds details, analyst comments, updates markets)
* Housing starts jump 15.7 percent to eight-month high
* Permits increase 8.1 percent, largest gain in over a year
* Consumer price index up 0.1 percent; Core CPI up 0.1
By Lucia Mutikani
WASHINGTON, Aug 19 U.S. housing starts surged to
an eight-month high in July, suggesting the nation's housing
market recovery was 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 new 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 straight months of declines and beat
economists' expectations for a rise to only a 969,000-unit rate.
It was the latest sign the market was regaining its footing
after being slammed by a run-up in interest rates last year. A
shortage of properties for sale has also 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 straight
month, economists said there was no evidence the underlying
trend in inflation was 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.
FED WATCHING WAGES
Most economists do not expect the U.S. 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
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,
"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."
U.S. stocks rose on the data, with homebuilders such as
Pulte Group and DR Horton rallying. The PHLX
housing sector index was up 1.7 percent in late morning
trading, outperforming the broader market.
In another bright sign, home improvement retailer Home Depot
reported second-quarter earnings that topped Wall
Street's expectations and it raised its full-year profit
forecast, sending its shares up 5.9 percent.
Groundbreaking for single-family homes, the largest part of
the market, increased 8.3 percent in July to a seven-month high.
Single-family starts in the South, where about half of the
single-family construction takes place, rebounded 16.9 percent
after dropping sharply in June.
Starts for the volatile multi-family homes segment jumped 33
percent to the highest level since January 2006. This market is
being buoyed by a shift towards renting, as many prospective
buyers give up on the dream of owning a house.
Building permits increased 8.1 percent, the largest gain
since April 2013. Permits for single-family homes rose 0.9
percent to an eight-month high, while permits for multi-family
housing soared 23.6 percent.
"The recovery in both starts and permits is a welcome
development that ... puts us back on a modest trend for
residential investment activity," said Bricklin Dwyer, an
economist at BNP Paribas in New York.
(Reporting by Lucia Mutikani; Editing by Paul Simao)