Retail Prices Edge Up 0.3% in May, Less Than Expected : Economists Also Heartened by Increase in Non-Defense Orders, Say Fear of Inflation May Have Been Overblown
Inflation eased slightly in May as retail prices rose by 0.3%, a somewhat smaller increase than expected, the Labor Department said Tuesday.
At the same time, the Commerce Department reported that new orders for factory goods other than Defense Department purchases increased by 1.4%, paced by an unusually robust 5.8% jump in orders for non-defense capital goods.
Economists greeted the reports as a double-barreled installment of good news, suggesting that fears of an inflation spurt that frightened markets in the spring were unfounded and that there may be renewed growth in the second half of the year. The economy grew at a strong 4.8% annual rate in the first quarter, though the April-June quarter is expected to be almost flat.
May’s 0.3% increase in prices followed 0.4% increases in each of the three preceding months.
In the greater Los Angeles-Long Beach-Anaheim area, consumer prices in May rose 0.7%, after a 0.4% increase in April. Prices have increased 4.8% during the past 12 months in the metropolitan area, compared to 3.8% nationwide.
Inflation nationwide, as measured by the consumer price index, “was better than expected, and it shows that consumers are beginning to resist price increases and are forcing some retailers--of apparel, home furnishings and some auto dealers--to slow down price increases or even roll them back,” said Donald Ratajczak, director of economic forecasting at Georgia State University.
He said the inflation statistic in May remained relatively low in large part because price increases slowed down sharply for import-sensitive goods, such as clothing. Prices for imports had been driven up by a weaker dollar.
In addition, the jump in energy prices that forced retail prices up 0.7% in January has leveled off, and recent increases in the wholesale price of gasoline and other fuels simply have not reached the gas pump.
Retail gasoline prices “are running about five cents a gallon behind what the wholesale prices would lead you to expect,” Ratajczak said. “There is still a lot of inventory there, and refiners are being squeezed.”
“On energy prices, there has been a downward trend ever since the big 3% jump in January,” noted Michael Penzer, a senior vice president at Bank of America in San Francisco. In February, the increase was 1.9%; in March, 1%; in April, 0.3%, and in May, 0.2%. “The markets had been looking at inflation coming in over 5%, but it now looks as though they were overly concerned.”
Food prices, driven by steep increases in wholesale meat costs during the past few months, were up 0.6% during the month. And services, the component in the index that most reflects the underlying inflationary pressures in the economy, rose only 0.3%.
5.6% Annual Rate
So far this year, inflation has moved at a seasonally adjusted annual rate of 5.6%, though the rate has slowed to 4.9% in the past three months.
The rate of inflation without the volatile food and energy measures was 0.3% and has hovered at an annual rate of 4% for some time, noted David Wyss of Data Resources, a forecasting firm in Lexington, Mass. “It’s almost boring,” he said. “Inflation has been remarkably stable for four years.”
Before seasonal adjustment, the consumer price index, from which the Labor Department computes monthly price changes, rose by one point, to 338.7 in May. The index is developed from a base of 100 in 1967, meaning that a selected cross section of consumer goods costing $100 in 1967 now costs $338.70.
