Saturday, July 17, 2004
Food and energy costs went up, but not as much as in May.
WASHINGTON (AP) -- Americans hard-hit by soaring food and energy prices got a bit of relief in June -- grocery and gasoline costs calmed down, holding consumer prices to a modest increase and providing fresh evidence that inflation isn't an immediate threat to the economy.
The government's most closely watched inflation gauge, the Consumer Price Index, rose 0.3 percent in June, down considerably from a 0.6 percent spike in the previous month, the Labor Department reported Friday. Food and energy costs did go up last month, but not by nearly as much as they did in May.
"I think this report paints an improving inflation picture," said Richard Yamarone, economist at Argus Research Corp. "It looks like inflation is not the red-eyed monster it was a few months ago."
Excluding energy and foods costs, "core" prices nudged up 0.1 percent in June, down from a 0.2 percent rise in May and the smallest increase since December. That deceleration suggested prices of other goods and services were relatively stable.
From an economic point of view, the latest snapshot of the nation's pricing climate was encouraging and supported the notion that the Federal Reserve should be able to boost interest rates gradually, rather than have to take more aggressive action to keep inflation at bay, analysts said.
Still, that's not to suggest the price picture is all rosy for consumers. Even with June's moderation in the CPI, consumers are still paying more for gasoline, food and some other items than they were a year ago.
In the first six months of this year, consumer prices went up at an annual rate of 4.9 percent, compared with a 1.9 percent rise for all of 2003. Core prices, meanwhile, have risen at a more moderate 2.6 percent rate so far this year.
Purchasing power is down
"Consumers' purchasing power has eroded over the past year. But that should abate," predicted Mark Zandi, chief economist at Economy.com. "I think the worst of the acceleration in inflation is behind us and that inflation should moderate through the remainder of the year."
But on Wall Street, stocks fell. The Dow Jones industrials lost 23.38 points to close at 10,139.78.
In an effort to make sure the expanding economy doesn't ignite an unwelcome rise in inflation, Fed Chairman Alan Greenspan and his colleagues raised interest rates for the first time in four years on June 30. The Fed increased a key rate to 1.25 percent, from a 46-year low of 1 percent.
At that time, Fed policy-makers said they were holding to the view that inflation currently doesn't pose a problem and that rates probably can go up at a measured pace.
"Although incoming inflation data are somewhat elevated, a portion of the increase in recent months appears to have been due to transitory factors," Fed policy-makers said. They said they expected underlying inflation "to be relatively low."
Fed policy-makers "may see the weakness in the inflation data as a vindication of their view that the inflation burst earlier this year was an anomaly," said Stephen Cecchetti, economics professor at Brandeis University.
Wholesale prices
At the wholesale level, prices actually fell 0.3 percent in June, the government reported Thursday. That bodes well for a further moderation in consumer prices in July and possibly August, some analysts said.
Economists, however, continue to believe the Fed will increase rates by another one-quarter percentage point when it meets Aug. 10. Rates are still at low levels that could sow the seeds of unwanted inflation in the future, they said.
In the CPI report, energy prices rose 2.6 percent in June, down from a 4.6 percent advance in May. Gasoline prices last month went up 3.1 percent -- compared with an 8.1 percent jump in May.
Food prices, which soared 0.9 percent in May, in part reflecting more expensive transportation costs due to higher fuel costs, rose by just 0.2 percent in June. Falling prices for fruit and vegetables helped to temper rising prices for dairy products, pork, poultry and beef and veal.
Health care costs rose 0.3 percent in June, while college tuition and fees jumped by 0.6 percent.