0.2% Rise Expected for July Consumer Index
If anyone needs more evidence that the economy is improving only slowly at best, it’s likely to come in the July consumer price data due to be released today by the Labor Department.
Economists say they are expecting only a 0.2% uptick for the month, following little change in June. That would indicate no tremendous burst of growth waiting on the horizon, but it would not be a disturbing sign of rising inflation either.
A general low-inflation outlook has been one of the engines for a big rally in bonds this week, helping to push the yield on the Treasury’s 30-year benchmark to successive all-time lows.
The security’s yield hit a record 6.43% on Wednesday as the price edged higher from previous levels.
Bonds are very sensitive to the path of inflation because policy-makers often combat rising prices by hiking interest rates, which in turn undercut the value of fixed-income investments.
Gold, which, unlike bonds, has historically been a haven in times of rising inflation, has recently rallied, and experts think prices will continue to rise.
“Most things on the horizon are inflationary, not recessionary,” said one precious metals dealer.
Traders point to declines in European interest rates as well as the pending 4.3-cent-per-gallon increase in U.S. gasoline taxes as signals that price pressures may exist.
But economists say the run-up in gold reflects foreign-exchange turmoil in Europe that has driven investors away from currencies such as the French franc until stability returns to Europe’s exchange-rate mechanism.
“I think it is really a spillover on the uncertainty” within the European Rate Mechanism, said Kathleen Stephansen of Donaldson, Lufkin & Jenrette Securities Corp.
Economists said energy prices, particularly gasoline prices, declined during the month, reducing their effect on consumer prices.
When the volatile food and energy sector is excluded from the overall Consumer Price Index for July, analysts expect to see the so-called “core” rate up 0.2%, compared to 0.1% for June.
The effects of the flood in the Midwest and the drought in the Southeast are not expected to show up in the CPI for July, though there were increases in the market prices for grains.
Rudy Oswald of the AFL-CIO thinks inflationary pressures are being held down in part because demand is slow as workers worry about their jobs and hold back on spending that might have been expected to be stronger at this point in the expansion.
Moreover, he said, wages are not keeping pace and this too is affecting spending, reducing the freedom to raise prices.
“If anything, wages have been deflationary,” Oswald said.
Capital Insight Inc. analyst Jay Goldinger, in discussing the price picture, summed up what seems to be the prevailing view by saying, “Everyone knows that inflation is not a problem.”
