July Inflation Report: Good News Before Storm

Falling energy prices helped hold down the overall increase in consumer prices in July, the government said today, in what analysts believe will be the last moderate inflation report before the Persian Gulf crisis produces higher oil costs.

The Labor Department said its Consumer Price Index rose 0.4% last month despite a 0.7% drop in energy costs.

The department said prices in the greater Los Angeles area rose 0.4% in July, slightly more than June’s 0.3% increase. It said housing costs, which rose 1%, were a major factor.

In the national figures, the overall July gain followed a slightly brisker 0.5% advance in June and a modest 0.2% rise in May. It was a bit larger than the 0.3% expected by most economists and was regarded as a worrisome sign going into August.

“It tells us that inflation was well-entrenched going into the oil shock. While not horrendous, it was very much a part of the scene,” said economist Robert Dederick of Northern Trust Co.

The Iraqi invasion of Kuwait has sent oil prices spiraling since the government surveyed prices for today’s report. Even without the oil shock, inflation for the first seven months of the year was running at a 5.8% annual rate, compared to 4.6% for all of 1989.

The various changes put the index for all consumer prices at 130.4 in July. That means that a hypothetical selection of goods that cost $10 in the 1982-84 base period cost $13.04 last month, up from $12.44 a year ago.