Consumer Prices Up Modest 0.3% in June : Declining Energy and Clothing Costs Offset Drought-Related Egg, Poultry Hike

Declining energy and clothing costs held the rise in consumer prices in June to 0.3% despite a drought-related surge in egg and poultry costs, the government reported today. But economists are predicting an inflationary rise for the second half of the year as this summer’s severe farm belt drought pushes other food prices up dramatically.

Last month’s rise in the consumer price index, the most widely used measure of inflation, was identical to its May increase, leaving it 4% above its level of a year earlier, the Labor Department said.

In the first half of 1988, prices rose at a seasonally adjusted annual rate of 4.4%, the same as the rise for all of 1987.

But economists are less optimistic about the second half.

“It’s very unlikely that you can persist in that, given the combination of circumstances that are beginning to build,” said economist David Jones of Aubrey G. Lanston and Co.

Jones said higher food prices, wage increases, swelling import costs stemming from a delayed effect of the decline in the dollar, and a possible oil price rise are combining to intensify inflationary pressure.

“You’ve got a whole series of things that are likely to push inflation higher,” he said, predicting that the inflation rate for all of 1988 will rise 5% to 5.5%.

Food, Shelter Increases

More than 60% of the overall increase in June was caused by food and shelter increases, the department said.

Food price increases accelerated to 0.6% in June from 0.4% in May as the early effects of the Midwest drought began to be felt at the supermarket.

Overall food price increases included gains of 5.4% for poultry and 6.6% for eggs.

“They clearly were responding to higher feed costs and that’s drought-related,” said Donald Ratajczak, director of economic forecasting at Georgia State University.

Many economists were surprised, however, to find that beef prices rose 1.3% in June and pork by 1.2%. They said they were still expecting temporary declines in red meat prices over the next few months, reflecting a supply glut as farmers thinned their herds to avoid paying higher feed costs.

Ratajczak blamed the meat price rise on seasonal factors and an emerging inflation psychology among food retailers.

‘Barbecue Season’

“There’s strong demand for meat in the summer,” he said. “It’s what we call the barbecue season.”

Keeping a lid on the overall increases was a 0.2% drop in energy prices in June, which included declines of 0.9% for gasoline, 1% for home heating oil and 0.3% for natural gas.

Excluding food and energy, which tend to move erratically from month to month, prices rose 0.4% in June after a 0.2% gain in May.

A 0.4% decline in clothing costs, largely reflecting discounts in women’s clothing, also restrained price rises. Clothing costs had surged by 2% in March and April before leveling off in May.