Prices Creep Up 0.3% in June; Analysts Split on Inflation Outlook

Retail prices climbed a modest 0.3% in June, slightly below analysts’ expectations, the Labor Department said Friday.

The report put consumer price inflation during the first half of the year at an annual rate of 4.4%, exactly level with the rate for all of 1987.

June’s increase in the consumer price index reflected a 0.6% jump in food prices, the fourth strong advance in as many months. That was offset in part by lower prices for energy and clothing, which had grown markedly more expensive in recent months.

The report was welcomed by White House spokesman Marlin Fitzwater, who is in Santa Barbara during President Reagan’s vacation at his nearby ranch. “The data continued to show no significant acceleration of inflation from the 4% range that has prevailed in recent years--more good news from a Republican Administration that’s given you 68 straight months of economic recovery,” Fitzwater said.

But private analysts remained split over whether inflation is on the verge of an ominous move upward.

“I don’t think there’s any cause for alarm here,” said Robert F. Wescott of Alphametrics, a Philadelphia economic forecasting firm. “There may be some slight upward drifting of inflation going on, but chances are we’ll see it lower rather than higher.”

Wescott said the drought in the Farm Belt would mean lower meat prices in the short term as grain shortages force growers to take their herds to market early, creating a glut. He also predicted lower energy prices for the rest of this year and a sharp break next year in the recently rising prices of metals and materials.

Taking an opposite view was Allen Sinai, chief economist at the Boston Co., a subsidiary of the New York investment house of Shearson Lehman Hutton. Sinai has been warning for several months that higher inflation will force the Federal Reserve to crack down by raising interest rates.

“The main plus here is that inflation didn’t get worse,” he said. “The negative is that inflation rates are now widespread and the prospects are for them to be higher.”

Sinai predicted that “food inflation is here to stay,” augmented by higher energy prices and steadily increasing prices in the service sector of the economy.

Another recent pessimist on price trends, Irwin L. Kellner, chief economist of Manufacturers Hanover Bank in New York, predicted that energy prices will begin a downward spiral if a cease-fire between Iran and Iraq, as accepted earlier this week by Iran, takes hold.

Even without a cease-fire, he pointed out, motor fuel costs fell 0.9% in June after a 1.7% increase the month before and now stand 1.1% below their levels of the beginning of the year. In addition, the Labor Department reported last week that wholesale energy prices dropped 1.6% last month and that prices of crude energy materials fell 1%.

“These lower oil prices could well bail the Fed out of the dilemma facing them: whether to let inflation go higher or to push up interest rates and risk another stock market crash before the election,” Kellner observed.

Striking a balance between the conflicting views was price specialist Donald Ratajczak of Georgia State University, who said energy and food prices will probably move in opposite directions for the next few months, with gasoline up in July and meat prices lower.

“Inflation is intensifying,” Ratajczak said, “but it’s not zooming up. It’s more like the tortoise picking up speed.”

Ratajczak said June’s increase in consumer beef and pork prices reflected not the drought but wider profit margins at the butcher counter. “We know that there was a lot of talk about the drought in the air in June, and supermarket managers may have used that to jack up meat prices,” he said.

He added, however, that the 5.4% increase in poultry costs and the 6.6% jump in the price of eggs were related directly to the hot, dry early summer weather.

The 0.3% decline in clothing prices in June, after a 3.8% increase since the beginning of the year, was driven by substantial end-of-season price reductions for women’s clothing, the Labor Department said. The cost of imported apparel has risen as the value of the dollar has fallen on international currency markets, and retailers have found that they can sell these goods only at deep discounts.

“This is the third season consumers have refused to buy the stuff, and we’re now in the sales phase,” Ratajczak said.

Other analysts faulted a major blunder by designers, who tried to revive the miniskirt but found very few takers.

Before seasonal adjustment, the consumer price index rose by half a point to 118 in June on a scale on which 100 represents price levels from 1982 to 1984. That means that consumer goods that cost $100 in 1982 to 1984 cost $118 in June.

The unadjusted index for the Los Angeles-Long Beach-Anaheim metropolitan area was unchanged for the month.