Consumer Prices Up Slightly in June

Consumer prices rose slightly in June, the government said Wednesday, while manufacturing picked up in an encouraging development for the economy.

But with no rise at all in the measure of core consumer prices, which strips out often-volatile food and energy costs, the threat of deflation continued to hover over the economy.

Overall production at American factories, mines and utilities rose 0.1% in June, the Federal Reserve said, with factories showing the biggest output gain since January. The amount of industrial capacity in use held steady for a second straight month at 74.3%.

Factory production, which accounts for more than four-fifths of overall industrial output, rose 0.4%.

The consumer price index report suggested the Fed needs to remain vigilant on deflation.

The CPI rose 0.2% last month, the Labor Department said, matching analyst expectations.

But core inflation, which strips out food and energy prices, was flat after an increase of 0.3% in May. Analysts were expecting the core rate to rise 0.1%.

The 12-month change in underlying inflation was 1.5%, the same as in April. The last time the core was as low as 1.5% was in March 1966.

Core inflation has slowed sharply this year, heightening concerns that the economy could tip into deflation, a potentially crippling condition in which the overall level of consumer prices drops. Fed Chairman Alan Greenspan told Congress on Wednesday that the central bank was concerned about a potential fall in prices even though the chance of “pernicious” deflation was remote.

“If it occurs, it is a very major event and even though its probability is very small, the size of the problem should it occur is sufficiently large to have engaged our attention,” Greenspan told the Senate Banking Committee.

Another report from the Commerce Department showed that U.S. firms reduced their stocks of unsold goods in May for the first time in more than a year. The department said stockpiles of goods dipped 0.2% in May after staying flat in April.

But analysts said the report did not give too much cause for concern. “The drop in inventories is linked to the war,” said Mark Vitner, economist at Wachovia Securities. “Business became more cautious, but now I think orders have revived.”