Consumer Prices Rise 0.2% in July, Holding Inflation Rate to 3.6%

Times Staff Writer

Consumer prices continued to creep upward in July, rising a scant 0.2% and holding the inflation rate for the last 12 months to a restrained 3.6%, the Labor Department reported Thursday.

Identical modest monthly increases had been recorded in June and May, and economists generally were optimistic that inflation would continue to remain low.

"This is more of the same good news we've seen for the last couple of years," said David Cross, an analyst with Chase Econometrics, a private forecasting firm in Bala Cynwyd, Pa. And, he added: "We can expect more of the same."

Richard Rahn, chief economist for the U.S. Chamber of Commerce, agreed. "Inflation is well under control," he said, "and it's no surprise. It's right where we expected."

But in a separate, less optimistic report that could signal a weakening in consumer demand, the Commerce Department said orders to U.S. factories for "big-ticket" durable goods fell 2.8% in July--the largest decrease since the index dropped 2.9% last March and a sharp turnaround from June's 3.6% increase.

Slowdown May Continue

Orders for durable goods--items expected to last three years or more--totaled $103.6 billion last month, the department said.

"The good news for consumers on the inflation front has to be balanced against the distorted impact of price declines on business," warned Jerry J. Jasinowski, chief economist for the National Assn. of Manufacturers. "The broad-based plunge in durable-goods orders is another confirmation" that the nation's general economic slowdown will continue, he said.

In the Los Angeles-Long Beach-Anaheim area, the consumer price index rose 0.6% in July, significantly higher than the national rate. The figures for San Diego will not be available until next month.

Grocery store prices, registering their first increase since February, rose 0.1% because of a rebound in the costs of fruits and vegetables, while prices for gasoline, fuel oil and electricity all declined.

Fresh vegetable prices, which had decreased 8.9% in the second quarter, soared 6.5% in July and more than offset the 4.3% drop in fresh fruit prices. However, prices for meats, poultry, fish and eggs--which had shown their first monthly increase of the year in June--declined again in July.

The cost of shelter increased 0.6% for both renters and homeowners, while medical care showed a rise of 0.5%, slightly lower than the 0.6% average monthly rate during the first six months of the year.

Prices for fuel oil fell 1.5% in July, 16.6% below their peak in April, 1981, the department said. The index for gasoline prices, meanwhile, declined 0.4% and is now 11.4% below its peak level of March, 1981.

The cost of natural gas rose 0.7% in July, and electricity costs dropped 0.6%, the department said. Prices for telephone services increased 0.8%, as hikes in local charges and intrastate toll calls more than offset a decline in the costs of interstate toll calls.

Cross of Chase Econometrics said: "The news is extremely positive for consumers in food and energy prices. We're expecting bumper crops again this year, meaning food prices will remain very stable. As for the direction of energy prices, if they go anywhere in the next year, they will go down. It's a very fundamental situation--there's too much supply out there."

Not all economists agreed, however.

"It can't last," said Michael K. Evans of Evans Economics, a private, Washington-based forecasting firm. He predicted that "late this year or early next year, we're going to see a substantial pickup in commodity prices, so the overall rate of inflation will go back to about 5%."

However, Rahn said that, "if the dollar sharply declines, inflation will indeed rise--but there is no particular reason to believe the dollar will sharply decline."

This could only happen, he said, "if our rate of growth falls relative to that of our major trading partners--and there is no reason to believe it will."

The July price index for urban consumers was 322.8, meaning that a selection of goods and services that cost $100 in 1967 would have cost $322.80 last month.

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