Source: http://www.cbc.ca/story/business/national/2006/08/15/inflation-tues.html

Inflation held steady in the United States in July, as falling food prices made up for a rise in the price of energy.

In its regular monthly report Tuesday, the U.S. Labour Department said wholesale prices increased by only 0.1 per cent in July, the smallest increase in five months, while core inflation, a measure that excludes volatile food and energy, fell by 0.3 per cent, the best showing since October.

The news reassured investors, who have been worrying that the U.S. Federal Reserve may start edging interest rates up again at its next rate-setting meeting as a precautionary move to keep inflation in check.

Economists with the central bank left interest rates untouched for the first time in two years last week, saying a slowing economy would offset an expected rise in energy costs.

But the Fed sent shivers through the market when it warned that it may have to raise rates again soon.

The labour department attributed the low inflation rate in July to a drop in food prices, as seasonal products worked their way onto the supermarket shelves. The price of food dropped by 0.3 per cent in July, after rising 1.4 per cent in June.

But the price of crude oil hit a record high on July 14, closing at $77.03 US on the New York Mercantile Exchange as conflict raged in the Middle East, threatening the flow of oil to the West.

The increases in crude prices have pushed gasoline costs above $3 US per gallon in many parts of the United States, enough to affect retail spending.

Canada's inflation rate remains higher than that of the United States. It dipped to 2.5 per cent in June on an annualized basis, as prices for gasoline and natural gas leveled off.