Consumer Prices Up .2%, a 16-Month Low : Small Increase in June Seen as Sign of Slowing Inflation

Inflation slowed in June as consumer prices rose a modest 0.2%, the smallest advance in 16 months, the government reported today.

The price moderation reflected the biggest drop in energy prices in more than two years and the smallest increase in food costs this year.

Consumer prices in the Greater Los Angeles area edged up by 0.3% in June, the smallest one-month hike since January, the Bureau of Labor Statistics said. And without higher shelter costs, the local consumer price index would have fallen by 0.2%, said Sam Hirabayashi, regional commissioner for the bureau. The Greater Los Angeles area includes Los Angeles, Orange, Riverside, San Bernardino and Ventura counties.

One-Third of May Increase

June’s 0.2% nationwide rise in the Consumer Price Index, the government’s primary gauge of inflation at the retail level, was just one-third the 0.6% increase recorded in May.

Even with the slowdown, prices at the consumer level rose at a seasonally adjusted annual rate of 5.9% in the first six months of 1989, the fastest pace for the first half of a year since 1982.

But the moderate June advance, the smallest increase since a similar 0.2% rise in February, 1988, was certain to be seen as good news at the Federal Reserve Board, which has been concerned that the country might be on the verge of another inflationary spiral.

Today’s report on consumer prices, coupled with news last week that wholesale prices fell in June, provided concrete evidence that the spurt in prices in the early part of 1989 was finally beginning to moderate.

Patrick Jackman, a Labor Department analyst, said price pressures over the next several months should moderate enough to keep consumer inflation for all of 1989 down at around 5%. Prices rose 4.4% in both 1987 and 1988.

The trouble at the beginning of the year was that energy prices, driven by the run-up in world petroleum prices, shot up at an annual rate of 40.3%.

However, energy prices at the consumer level fell by 1% in June, the biggest decline since a 1.9% drop in October, 1986.

Small Rise for Food

Food costs, which had been climbing at the fastest pace since 1980, moderated as well in June, rising by just 0.2%, reflecting a declining impact from last summer’s drought.

While both food and energy prices moderated in June, other costs were held in check as well. The Consumer Price Index, excluding food and energy, rose only 0.2% in June, down from a 0.5% advance in May.

June’s slight rise in food prices reflected in large part a sharp turnaround in fruit and vegetable costs. Prices of these products declined 1% in June after surging 3.2% in May. Prices also fell for dairy products, beef and pork.

The 1% drop in overall energy costs reflected a 1% drop in gasoline prices at the pump and declines for home heating oil, natural gas and electricity costs.

Clothing costs fell 1.1% in June, after increasing 2.3% in the first five months of the year. The big decline was credited to larger than usual end-of-season price reductions, particularly in women’s clothing.

Medical costs rose 0.7% in June, the biggest advance for any of the major categories, with doctors’ costs, hospital costs and prescription drug costs all rising sharply.

In a separate report today, the Labor Department said Americans’ average weekly earnings, after adjusting for inflation, were unchanged in June after falling 1.4% in May.