Prices Up Scant 0.2% in June : Jump in Durable Goods Spurs Hope for Economy

Inflation remained at bay last month as consumer prices in June rose a scant 0.2%, and orders for durable goods jumped a healthy 1.8%, the government reported Tuesday.

The two reports held out hope that the economy may be snapping out of its doldrums during the second half of the year.

Low inflation now generally is taken for granted, and the Labor Department said the consumer price index rose a moderate 3.7% during the 12 months ending in June. Consumer prices in the Los Angeles metropolitan area were unchanged, the department said, and have increased only 3.5% in the last 12 months.

But the Commerce Department reported an increase in orders for big-ticket manufactured goods, which included a healthy 6.8% increase in the key category of non-defense capital goods and was not widely expected. This category includes such items as machinery and equipment used in civilian industrial production.

Politicians and economists alike seized on it as a sign of renewed economic growth after an anemic first half of 1985.

At the White House, spokesman Larry Speakes said: “All economic indicators are still pointing to very strong third and fourth quarters.” He added that “inflation is still under control.”

Robert F. Wescott of Wharton Econometrics, a private forecasting firm, agreed. He called the report on durable goods orders “really positive” and welcomed not only the jump in non-defense capital goods orders but also the even sharper 13.7% increase in defense-related orders.

Defense Goods Cited

“Defense goods count for a lot,” he said. “They create jobs and income and are a real part of the economic landscape.”

After economic growth of only 1% at an annual rate during the first half of the year, Wescott suggested that the stage is set for renewed growth. “The evidence over the past month suggests we may be seeing the tide turn, in terms of moving from the stagnation of the past year to real growth activity,” he said.

Allen Sinai, chief economist of Shearson Lehman Bros., was also encouraged but less confident that a turnaround may be at hand. June’s jump in non-defense capital goods orders, on top of a 0.9% increase in May, marked the first two months of substantial growth in a year.

Dollar Factor Considered

But, Sinai warned, “we need three or four months of consecutive increases before the data is convincing that we have turned the corner. So much consumer spending is still going abroad that we have to wait and see if the dollar has fallen enough to divert more of those orders back to U.S. manufacturers.”

The falling dollar, which could boost the price of imported goods, could aggravate inflation at the same time that it boosts the prospects of U.S. manufacturers. But, for now, inflation’s trend is downward.

In all, the consumer price index stood at 322.3 in June, meaning that goods costing $10 in 1967, the base year, would have cost $32.23 last month.

Slight Rise in Gasoline

Consumer prices increased at a 4.1% annual rate from January through March but only a 3.3% rate in the April-June quarter. Energy prices, which spurted in the spring, seem destined to fall back as the Organization of Petroleum Exporting Countries struggles to regain control of the world market. Gasoline prices, up sharply in April and May, rose a mere 0.2% in June.

Sarah Johnson of Data Resources Inc., a Massachusetts forecasting firm, said that, with bumper crops worldwide and fuel prices again moving downward, inflation for all of 1985 should be only about 3.5%.

Sinai puts inflation at 3% to 3.5% for the year--”the best we’ve had since the early 1960s. It’s extraordinary in the third year of an economic expansion to see declining inflation.”

Better Inflation Seen

Wescott agreed, saying that inflation “is going to get even better during the next few months as we see a decline in the price of oil.” Even a falling dollar, he said, would have scant impact in the short run because foreign suppliers would most likely try to cut prices to maintain their share of the huge American market, which remains the key to economic growth in Western Europe.