Inflation Index Up a Modest .2% in July : Drop in Prices of Gasoline, Apparel Cited in Slowdown

Consumer inflation rose a modest 0.2% in July, held down by the sharpest drop in gasoline prices in nearly three years, the government said today.

The increase in the Labor Department’s consumer price index last month matched the gain in June. Together, the two reports showed the mildest two-month inflation picture since July-August of 1986 and marked a sharp contrast to surging prices in the first five months of this year.

Even with the recent slowdown, prices for the first seven months of 1989 rose at a 5.5% annual rate, more than a full percentage point higher than the 4.4% increases in both 1988 and 1987.

Gasoline, Apparel Cited

The Labor Department said the most recent dampening of cost pressures reflected drops in prices of gasoline and apparel, particularly women’s clothing, and a moderate rise in food costs.

“It’s more good news,” said economist Sandra Shaber of the Futures Group, a Washington consulting firm. “The overall trend has been that the economy is, in fact, achieving the soft landing everyone was hoping for. In other words, growth is continuing, but inflation is under control.”

In a separate report, the department said the moderation in inflation produced a 1.5% jump in Americans’ average real earnings, to $338.01 a week. It was the largest advance since February, 1982, and followed a slight 0.1% gain in June.

In reaction to the inflation news, the stock market dipped slightly in early trading today. Analysts said traders believed the price moderation was not dramatic enough to spur the Federal Reserve Board into loosening credit any time soon.

However, in Kennebunkport, Me., presidential spokesman Marlin Fitzwater said, “We believe inflation is on a downward trend (and) . . . lower inflation should take the pressure off interest rates.” The Administration has been pressuring the Fed not to choke off economic growth, which would sharply reduce tax revenue and inflate the budget deficit.

Gasoline prices, after shooting up 21.2% in the first five months of the year, fell 1% in June and dropped an additional 2.2% in July, the sharpest decline since October, 1986.

However, fuel oil costs rose 1.5% last month, reversing June’s decline of 1.2%, and natural gas was up 0.5%.

Food and beverage costs rose a moderate 0.3% in July following a 0.2% June gain. That was a moderation from the first five months of the year, when the lingering effects of last year’s drought sent food prices up at a 9.3% annual rate.

Clothing costs were down 0.8% last month, following a 1.1% decline in June. Prices for women’s and girls’ apparel fell 2% and those for infants and toddlers dropped 4.8%.

The Labor Department attributed the declines to larger-than-usual end-of-the-season price discounts for women’s clothing.

The price of goods and services other than food and energy rose 0.4%, driven up by a 2% gain for tobacco but dampened by a 0.4% decline for new cars.