Consumer Price Index Posts Moderate 0.3% Gain in June : Economy: While the annual rate is just 2.5%, some analysts say there are signs the cost of living could climb.
Consumer prices rose moderately in June, slightly faster than the previous month, providing what analysts said is the merest glimmer of possible higher inflation to come.
The Labor Department said Wednesday that the consumer price index was up 0.3% in June, following a 0.2% rise in May and 0.1% in April. Rising gasoline prices, car prices and car financing costs contributed significantly, along with higher clothing and medical care costs.
So far this year, prices at the consumer level are rising at an annual rate of just 2.5%, even better than the modest 2.7% gain posted for all of 1993.
Still, some analysts said there are warning signs that the cost of living could climb.
“The June figure is just a little disappointing,” said Prof. Norman Robertson of Carnegie Mellon University in Pittsburgh. “It’s a little on the high side, suggesting there is some increase in the inflation rate on the horizon.”
“The inflation report is neither good nor bad near-term but leaves open the question of whether inflation will accelerate in the future,” said Allen Sinai of Lehman Bros. investors.
But other economists said inflation is mostly a figment of the worried imaginations of nervous investors and traders.
“Inflation remains a non-problem despite the continued growth in the U.S. economy,” said Martin Regalia of the U.S. Chamber of Commerce.
“Overall, we have modest inflation, and I expect it to continue,” said economist Carl Palash of MCM MoneyWatch, a New York financial adviser.
“Goods prices, outside of energy and food, have accelerated and likely will continue due to low inventories for items like automobiles and apparel,” he said. “But offsetting that is deceleration in services prices.”
The consumer price report came just one day after even better inflation news. The Labor Department reported Tuesday that wholesale prices held steady in June, the third straight month in which inflation at the producer level was nonexistent.
The Labor Department also reported Wednesday that the weekly earnings of Americans in June declined 1% after rising 0.5% in May. It was the first decline in earnings since February.
Despite the evidence that inflation is subdued, many analysts expect the Federal Reserve Board to raise short-term interest rates for the fifth time this year--probably when central bank policy-makers next meet, on Aug. 16.
Since February, the Fed has boosted the federal funds rate--the rate banks charge each other for overnight loans--from 3% to 4.25% and has raised the discount rate for direct Fed loans to banks from 3% to 3.5%.
Those predicting an additional increase cite shortages and higher prices for some commodities and sharp increases in the size of the work force, which could lead to labor shortages and thus higher wages.
Overall, the economy continues to perform well, expanding at a healthy rate after spectacular growth in the final months of 1993.
The consumer price report was generally in line with analysts’ predictions and produced a positive reaction on Wall Street.
But the falling U.S. dollar and fears of higher interest rates are still troubling the financial markets.
Inflation has remained calm throughout the prolonged economic recovery. Prior to last year’s 2.7% rise in the cost of living, inflation was up 2.9% in 1992 and 3.1% in 1991.
Consumer Price Index
Percent change from prior month, seasonally adjusted:
Jan. ‘94: 0%
June ‘94: 0.30%
Source: Labor Department
