Consumer Prices Rise 0.5% in June, Fall 0.2% in 1st Half
Led by an increase in gasoline costs, the inflation rate rose 0.5% in June for the sharpest jump since last November, the Labor Department reported Wednesday, but so far this year consumer prices actually have fallen slightly.
Economists, pointing to a recent dip in gasoline prices that reversed the May-June rise, predicted that overall inflation would remain moribund for at least the next several months.
“Inflation is still a dead issue,” said Robert Gough, senior economist at Data Resources in Lexington, Mass. “For the year as a whole, we see an increase in consumer prices of 2%--max.”
In the first six months of 1986, the consumer price index fell at a seasonally adjusted annual rate of 0.2%. Over the last 12-month period, consumer prices have risen by just 1.7%.
Locally, prices in June rose 0.6% in the Los Angeles-Orange County metropolitan area, leaving the consumer price index 3.8% higher than a year earlier in the region.
Factory Orders Surge
The price index, before adjustment for seasonal variations, now stands at 327.9. That means that the government’s fixed market basket of consumer purchases--ranging from food and health care to housing and transportation--that cost $10 in 1967 now would cost $32.79.
Meanwhile, the government reported a sharp increase in factory orders for durable goods, perhaps the first glimmer of hope that the long-awaited economic rebound could actually show up this year.
New orders for durable goods--manufactured items that last more than three years--rose a strong 2.1% to $104.77 billion, the first gain since January. Even without a notoriously volatile 13.7% jump in defense orders for capital goods, the key indicator of future economic activity was up by a solid 1%.
“The pulse of the economy may finally be starting to beat a bit more strongly,” said Irwin Kellner, chief economist at Manufacturers Hanover Trust. “This is the first good news we have seen in the industrial sector in quite a while.”
But analysts cautioned that any one monthly report can be an unreliable key to future trends and warned that consumer spending--which has been rising steadily in recent months--needs to remain strong to help lift the economy from the doldrums of the last two years.
“Consumers need to keep spending to keep the economy on track,” Gough said. “I’m worried that we will run out of steam because consumers can’t keep on spending more than their income.”
Indeed, adding to the uncertainty was another jump in consumption last month--despite a weak gain in personal income--suggesting that consumers are going deeper into debt to finance continued spending.
AT&T; Strike Cited
Personal consumption rose 0.6%, the fifth rise in the last six months. But, at the same time, income growth was a sluggish 0.1% in June following a 0.3% decline in May.
The weakness may have been an aberration, however, because a strike by American Telephone & Telegraph workers, paired with a decline in government subsidy payments to farmers, dragged down personal income. Excluding these two factors, income would have expanded by 0.2% in May and 0.4% last month.
Deflation has been a rare experience in the U.S. economy since the end of World War II. The last time that prices fell as much over a six-month period was nearly three decades ago, when the consumer price index declined by 0.2% from May to October in 1958.
During the first half of 1986, the cost of energy--fuel oil, coal, bottled gas and motor fuels--declined at an astounding annual rate of 40.2%.
And the effect of the energy decline on overall prices is probably not over.
“With oil prices plunging again, I expect to see another monthly drop in consumer prices in July and maybe August,” said Donald Ratajczak, an inflation specialist who heads an economic forecasting group at Georgia State University in Atlanta. “May and June may end up standing out as islands in a sea of price declines from February through August.”
