Consumer Inflation Held to Modest 0.2% : 2nd Month in Row; Vegetable, Fuel Oil Declines Credited

Falling vegetable and fuel oil prices in May held consumer inflation to a modest 0.2% for the second consecutive month, the government said today.

For the first five months of the year, the Labor Department’s consumer price index has advanced at an annual rate of 5.8%. That’s up significantly from the 4.6% rate for all of last year, but down sharply from the worrisome 8.5% rate in the first quarter.

The good news was expected by most economists, who said prices are recovering from a cold weather jolt at the beginning of the year.

“Just as first-quarter inflation was overstated, inflation (in April and May) was understated,” said economist Michael K. Evans, a Washington-based consultant. “We’re almost sure price increases are going to get bigger again next month.”

White House Press Secretary Marlin Fitzwater said that “despite the temporary increase in the first quarter, over the last 12 months consumer prices have increased 4.4%. Inflation remains low and under control.”

The Labor Department said prices of fruit and vegetables fell 2.4%, the third substantial drop in a row. Vegetables soared 29.2% in the first two months of the year before falling 23.6% in the next three months.

Food overall in May rose just 0.1% after edging down 0.2% in April.

Dairy product costs fell for the third consecutive month in May while prices were up for sweets, fats and oils and beverages.

Energy prices fell 0.7%, the fourth monthly decline after a large increase in January. Fuel oil fell 1.4% and natural gas 2.7%. However, electricity charges rose 1%.

Gasoline prices rose modestly, but less than usual for the start of the warm weather driving season. Thus, after seasonal adjustment, gasoline prices were reported down 1.6%.

Excluding the often volatile food and energy sectors, prices rose a moderate 0.3% after a 0.2% rise in April. Economists consider this so-called core rate a better indication of underlying inflation because it moves less erratically.

New car prices edged down 0.2%, the fourth consecutive decline in the face of sluggish sales.

Apparel prices, which had been up sharply earlier in the year because a warm February got spring sales off to an early start, fell 0.3% last month. The price of men’s clothing rose 0.4%, but women’s and children’s clothing fell 1% and 2.2% respectively.

The price of medical care jumped 0.8% in May for the fourth consecutive month, pushing those costs 9% higher than a year ago.

The various changes put the index for all consumer prices at 129.2 in May. That means a hypothetical selection of goods and services costing $100 in the 1982-84 base period cost $129.20 last month, up from $123.80 a year ago.

Wholesale prices, which rose 0.3% in May, have behaved more moderately than consumer prices. The Labor Department’s producer price index is up at only a 4% annual rate so far this year, down from 4.8% for all of last year.

Economists point to the different composition of the two indexes as an explanation for their divergence.