Reports Show Steady Growth, Tame Inflation

The U.S. economy is growing steadily with inflation under control, bolstering expectations for more Federal Reserve interest rate increases, data released Friday showed.

A report showing that producer prices held steady last month -- with a core inflation reading of minus 0.1% -- was the second measure this week to reflect tame price pressures.

On Thursday, the government said prices at the consumer level also held steady last month, with prices outside of food and energy up just 0.1%.

However, some analysts said higher-than-expected readings on June industrial production and a strong New York Federal Reserve factory survey for July reflected above-trend economic growth, which combined with a tighter labor market could create new inflation pressures.

“The numbers on inflation should reassure the Fed, but the economy’s ongoing strength with the continued drop of the unemployment rate could keep inflation as an issue to monitor over the next several months,” said Lynn Reaser, chief economist at Banc of America Capital Management in Boston.

The Fed said June industrial output rose 0.9%, more than twice the expected 0.4% gain.

In a separate report, the University of Michigan’s preliminary consumer sentiment survey for July came in above expectations at 96.5, the highest for 2005.

“Apparently gasoline prices are not depressing consumer confidence, at least for the moment,” said Chris Rupkey, senior financial economist at Bank of Tokyo/Mitsubishi. “This bodes well for consumer spending for the rest of the summer.”

Consumer spending accounts for two-thirds of overall U.S. economic activity, and any improvement in confidence is seen as a possible precursor to stronger growth.

The government said producer prices, despite higher gasoline prices, held steady in June, benefiting from sharply lower food and vehicle costs. The steady reading for the index, a gauge of prices received by farms, factories and refineries, followed a 0.6% drop in May.

Producer prices outside of the volatile food and energy items slipped 0.1% in June, the first decline in four months, as prices of cars and light trucks plummeted. Without lower vehicle costs, the core producer price index would have moved up 0.2%, the Labor Department said.

In another report, the Commerce Department said business inventories grew by just 0.1% in May, somewhat less than expected. Sales shrank 0.1%.