WASHINGTON -- Most analysts still expect the Federal Reserve to raise short-term interest rates again tomorrow despite Friday's slightly better than expected July retail price report.

"The CPI report did not change my mind on that," said Stuart Hoffman, chief economist of PNC Bank Corp. based in Pittsburgh.

The Federal Open Market Committee meets again tomorrow to review monetary policy. Most economists expect the 12-member panel will vote to raise the federal funds rate by 25 or 50 basis points from its current level of 4.25%.

Some analysts also anticipate a half-point hike in the discount rate, now at 3.5%, if the fed funds rate is raised by that much.

The Labor Department Friday said the consumer price index gained 0.3% in July while the core CPI, excluding food and energy, increased 0.2%. The gain in the overall index was expected, but the core rate's gain was a tenth of a point lower.

Economists said they were encouraged that growth in the core CPI slowed from 0.3% gains in the two previous months. They also said the 0.3% gain in the overall index was better than it looked because much of it resulted from higher gasoline and coffee prices, which they said were likely to be short-term.

"It was a benign inflation report," said Alan Levenson, money market economist with UBS Securities in New York.

However, some analysts said the report, though generally positive, hinted that inflation was on the verge of accelerating.

Consumer prices gained 2.8% during the last 12 months but rose at a 3.3% annual rate over the last three months, according to Friday's report. The core CPI also gained at a faster rate during the last three months than over the last year.

"I would be surprised if the Fed does not tighten," said Mark Zandi, chief economist of Regional Financial Associates in West Chester, Pa. Analysts fall into three distinct camps regarding what they expect the Fed to do.

Sam Kahan, chief economist of Fuji Securities Inc. in Chicago, said a clear majority of analysts expect a half-point hike in the fed funds rate as a way for the Fed to prove its mettle to the bond market. "Most of New York feels that way," he said.

However, Kahan predicted the Fed will hike rates by 25 basis points and then sit back and wait for more information on the economy to roll in. "It's not clear where the economy is going," he said.

PNC's Hoffman also falls into the quarter-point camp. He said recent economic reports have been particularly ambiguous, which is not unusual for mid-summer months. "What the Fed sees over the next 60 days will be more informative," he said, regarding important gauges of demand, such as car sales.

There is also a minority of analysts who predict the Fed will not hike rates during or shortly after tomorrow's meeting because they say the data is too sketchy.

"You can support the idea that they'll do nothing," said Christine Chmura, chief economist of Crestar Bank based in Richmond, Va. "I certainly am in a minority on that point of view."

Chmura said there may be just enough evidence of a slowing economy to keep Fed officials from pulling the trigger again for the time being. For example, she pointed to the inventory buildup in the second quarter as one sign that growth will likely slow to around 2.5% in the second half of the year, which Fed officials would probably view as noninflationary.

In fact, on Friday the Commerce Department reported that business inventories in June grew 0.4%, which was in line with expectations and was a substantial slowdown in growth from a 1.2% advance in May. However, retail inventories continued to expand robustly, gaining 1.4% in June following 1.8% growth in May.

Chmura and others pointed to this as a sign that much of the inventory accumulation last quarter was probably unanticipated.

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