Biggest Grocery Price Rise in 4 1/2 Years Spurs Inflation : Drought Blamed for Increase

The steepest grocery store increases in 4 1/2 years pushed consumer prices up 0.4% in July as the effects of the summer-long drought reached consumers, the government said today.

If consumer prices continue to rise at July’s pace, inflation for the entire year will be 5.2%, the bureau reported. For the first seven months of this year, inflation has been running at 4.5%, contrasted with 4.4% for all of 1987.

The department noted in today’s announcement that the food price gains “reflect rising input prices, at least partially due to the adverse summer weather,” and showed that, except for food, price gains were moderate.

Excluding food and energy costs, consumer prices rose 0.3% last month, slightly less than the average monthly increase posted in the first half of 1988.

Grocery Prices Up 1.4%

Grocery store food prices jumped 1.4%, the largest advance since January, 1984, the Bureau of Labor Statistics said. More than three-quarters of this advance was due to sharply higher prices for fresh fruits and vegetables, up 4.7%, poultry, up 7.4%, and eggs, up 9.6%.

Food prices advanced 0.9% in July, even though meat prices were 2.2% lower because drought-stricken ranchers sold cattle early to save feed costs.

A 0.7% increase in the cost of gasoline sent energy prices up after a decline in June, the bureau reported.

Donald Ratajczak, chief economist for the Georgia State University economic forecasting project, said the report is indicative “of the kind of inflation rates we’ll see for the rest of the year.”

The report generally is reassuring to policy-makers “because it shows the base rate of inflation is fairly stable.

Grocer Store, Gas Station

“The people in the grocery stores are going to be in shock,” he said. “The grocery store and the gas station are the places (people) see prices most frequently.”

The overall 0.4% increase follows 0.3% jumps in May and June and matches a 0.4% increase in April.

Housing costs rose at a 0.3% pace for the sixth straight month as declines in home heating oil and electricity costs offset higher charges for natural gas.

Clothing prices dropped 0.6% after falling 0.3% in June. Those prices had risen 3.8% in the first five months of 1988. The Labor Department said larger than usual end-of-season price reductions in women’s clothing were responsible for most of the declines.

‘Big-Ticket’ Items Plunge

Medical care costs jumped 0.7% to a level 6.6% above where they had been a year ago. Hospital expenses were up 1.0% while the cost of prescription and over-the-counter drugs gained 0.9%.

Transportation expenses rose 0.4 percent after a 0.2 percent rise in June. The higher gasoline prices were largely to blame.

The Reagan Administration, labor unions and major business groups such as the U.S. Chamber of Commerce all maintain that inflation remains under control and that any one-month rise in consumer prices poses no problem.

In a separate report, the Commerce Department said today that orders for “big-ticket” durable goods plunged 7% in July, the biggest drop in four years, as the manufacturing sector continued to be buffeted by volatile swings in the transportation category.

The Commerce Department said total orders fell to a seasonally adjusted $116.6 billion last month, primarily because of a huge decline in orders for cars, aircraft, ships and tanks.

Without the big swings in transportation, orders would have fallen 0.9% in July after rising 0.7% in June.