Consumer Price Inflation Still Minimal: 0.1% in June
Consumer price inflation has all but vanished this year.
The Labor Department reported Wednesday that the consumer price index rose 0.1% in June for the fourth consecutive month, as declines in energy and apparel prices largely offset increases in housing, medical care and entertainment.
Over the first half of the year, the consumer price index rose at a 1.4% annual rate, the smallest rise for the first half of a year since 1986, when oil prices collapsed.
“Trying to find inflation in this economy is like trying to find a flea on a furry dog. Every once in awhile he scratches, but it is hard to see the flea,” said Ken Mayland, chief economist at KeyCorp Inc., a bank holding company in Cleveland.
In Southern California as well, consumer prices edged lower in June by 0.1%. The Labor Department said lower transportation costs and apparel prices offset higher food prices and housing costs throughout the five-county region. Year to date, prices increased 0.7%, compared with 1.4% for the first half of 1996.
The Federal Reserve Board said industrial production, the output of the nation’s factories, mines and utilities, rose a moderate 0.3% last month, an increase analysts said posed no threat of inflation in the prices charged by firms in that part of the economy.
Even if volatile food and energy prices are excluded, the index has been remarkably well-behaved. The so-called core CPI rose also 0.1% last month and 2.4% over the last 12 months. That was the smallest increase in the core CPI in 31 years.
White House economist Janet L. Yellen said the report, along with other recent ones on prices charged by producers and on retail sales, indicates the economic expansion “is continuing at a sustainable rate with no apparent pressure on prices.”
A number of private economists, including Mickey Levy, chief financial economist at NationsBank Corp. in New York, agreed.
“Not only is inflation tame at the consumer price level, there is every indication that it will remain low and stable,” Levy said.
The news sparked rallies in both the stock and bond markets. The Dow Jones industrials average rose 63.17 points, to close at a record 8,038.88. The price of a 30-year U.S. Treasury bond rose, sending its yield down to 6.47% from 6.54%.
The price news has been so good that many investors “are again in the process of ratcheting down their expectations for inflation,” Levy said. That means that when economic growth “does re-accelerate, interest rates won’t rise as much as they did early this year when growth surged. Investors are learning that healthy growth and low inflation aren’t inconsistent with each other.”
Levy and several other analysts said the combination of the moderate growth signaled by the industrial production increase and the very low inflation numbers means that the Fed is likely to leave short-term interest rates alone when the central bank’s policymakers meet on Aug. 19. That view should be reinforced Tuesday when Fed Chairman Alan Greenspan delivers a report on monetary policy to Congress, they said.
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Consumer Prices
Percentage change, month to month, seasonally adjusted:
June: +0.1%
Source: Bureau of Labor Statistics
