Inflation Stays Low; Housing Starts Leap 5.2% : Economy: The small 0.2% rise in the consumer price index, coupled with the jump in construction offer new evidence that the recovery is on track.

The government published fresh statistics Wednesday confirming that the economic recovery is proceeding and that the inflation picture is improving.

The Labor Department’s monthly consumer price index edged up by 0.2% in June, after an increase of 0.3% in May, the agency reported. It was the fifth consecutive month that inflation at the retail level has remained moderate.

Meanwhile, the Commerce Department reported that housing starts, a key barometer of future economic activity, soared 5.2% in June in the third increase in a row. Housing starts had risen 1.2% in May and 7.7% in April.

Part of the June improvement on the price front stemmed from a further reduction in energy prices, which fell 1% in June after surging 1.4% in May. But inflation also moderated in a wide variety of categories: Housing prices edged up 0.1%, after rising 0.2% in May. Transportation costs rose 0.2%, following an 0.7% jump in May. And entertainment costs rose 0.2%, in line with their May increases.

The big exception was in food prices, which surged 0.5% in June after remaining stable during May. Virtually all of the increase in food prices stemmed from a 6.1% jump in prices of fresh fruits and vegetables. Medical costs also continued to soar, rising 0.6%--the same as in May.

Separately, the department said that consumer prices in Southern California remained unchanged in June, following a scant rise the previous month. The California figures are compiled using a smaller sample and generally are more volatile than the national index.

The gain in housing starts nationally in June boosted the pace of new construction to a 1-million-start annual rate for the first time in seven months. Even so, housing starts in June were still 12.3% lower than a year ago.

The combination of figures strengthened the fast-growing consensus--endorsed on Tuesday by Federal Reserve Board Chairman Alan Greenspan--that the recovery is under way and that inflation is moderating and is likely to continue improving.

Michael Penzer, economist for Bank of America in San Francisco, said the forecast is looking far brighter than it did a few weeks ago. “We agree with the Fed view that . . . inflation should trend downward well into next year,” he said.

Wednesday’s report showed that the index excluding volatile food and energy prices--which economists say provides a better measure of the underlying rate of inflation--rose by 0.4% during June, following an 0.2% increase in May.

Consumer Price Index Percent change from prior month, seasonally adjusted June, ‘91: +0.2% May, ‘91: +0.3% June, ‘90: +0.5% Source: Labor Department

Housing Starts Seasonally adjusted annual rate, millions units June, ‘91: 1.04 May, ‘91: 0.99 June, ‘90: 1.19 Source: Commerce Department

(Southland Edition) The Economy Consumer prices rose moderately for the fifth month in a row, and housing starts soared. THE CHANGES

The overall index rose 0.2% in June, compared to an 0.3% rise in May.

Energy prices: Down

Food: Up sharply

Clothing: Down

Cars: Up

WHAT DOES IT MEAN?

The inflation picture is continuing to improve in the face of the sluggish economy.

* Inflation: Expect continued improvement on the price front.

* Recession: Construction may be making a comeback.

* Interest Rates: The Federal Reserve will have more maneuvering room in cutting interest rates, but Fed Chairman Alan Greenspan says it is unlikely to do so.

Source: Consumer Price Index, which tracks inflation at the retail level.