CPI Barely Budges; Pay at Decade High : Economy: May’s 0.1% rise in consumer prices further quells inflation jitters. The White House hails the pair of reports.
In new reports that buoyed President Clinton and further dampened inflation worries, the government said Tuesday that prices paid by consumers hardly rose last month, while American workers’ wages staged their biggest monthly gain in more than a decade.
The Labor Department reported a 0.1% uptick in the consumer price index in May, reflecting a big drop in energy costs that offset a sharp jump in food prices. The moderation in consumer prices followed a hand-wringing 0.4% surge in April and, buttressed by good news on wages as well as the trade front, was hailed by the White House.
“I am confident that the continuation of this trend depends on our ability to pass a strong economic program through the Congress,” said Clinton, who is seeking approval of a five-year, $500-billion deficit-reduction plan and is touting low interest rates as a sign that his economic strategy is working.
The tiny rise in consumer prices last month came despite the marked increase in weekly wage income that experts have traditionally warned can trigger inflationary spending. American workers’ average weekly earnings, adjusted for inflation, surged 1.6% in May, compared to a revised 0.1% gain in April.
The May earnings figures mark the largest weekly jump since February, 1982, when pay levels climbed 2.3%, the Labor Department said.
However, private economists said the positive wage report does not signal a turnaround in the living standards of American workers because much of the improvement was due to increased overtime rather than a rise in salaries and hourly pay.
The length of overtime among factory workers was the highest ever recorded, while total hours worked in May across all industries outside farming were their highest since 1989.
As employers gain confidence in the strength of the recovery, they would be expected to reduce overtime by hiring more people. And that could reverse this earnings gain, economists said.
Meanwhile, the overall U.S. trade deficit narrowed 11.7% in the first three months of the year, falling to $20.91 billion from $23.69 billion during the final three months of 1992. Experts said the improvement came in part from strong overseas purchases of American services such as tourism, telecommunications and banking that helped offset a higher trade deficit in manufactured goods.
“There is no question that the White House is breathing a sigh of relief in the wake of the reports of these last few days,” said economist Daryl Delano, who speculated that the President may have been fearing double-digit inflation and “the specter of Jimmy Carter” as recently as a week ago.
“But with these kinds of inflation numbers and a credible deficit-reduction plan, I think the White House now feels inflation could be kept low” for a long time, said Delano, who analyzes economic statistics for Cahners Economics, a Newton, Mass., consulting firm.
Consumer prices have risen this year at an annual rate of 3.8%, compared to the 2.9% increase posted for all of last year.
Many economists, however, think it may be several weeks before the statistics provide a reliable picture of the health of the nation’s economy. They worry that if inflation was apparently overstated in the first quarter, May’s figures may be understating price increases.
They note, for example, that the “core” rate of inflation, which excludes volatile sectors such as food and energy, was 0.2% last month.
“The numbers over the next couple of months are going to look better than the actual underlying rate of inflation,” as wages and the work force grow, said David W. Berson, chief economist at the Federal National Mortgage Assn.
Still, Berson predicts that the annual rate of inflation will remain around 3% for the year and that consumer prices will be helped by a number of factors, including previously announced price cuts on tobacco products, softening lumber prices because the Administration has made no move to restrict logging, and moderating food prices as the Farm Belt recovers from destructive storms and harsh weather.
“I don’t see inflation plunging dramatically lower,” Berson said. But for now, he added, the economy appears to be progressing well enough that the Administration and the Federal Reserve Board, which oversees the nation’s monetary policy, can leave it “on automatic pilot for a while.”
