Consumer prices flat in May; housing starts soar

Tuesday, June 18th 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ Consumer prices were flat in May, the best showing in five months, as lower costs for gasoline, clothes and cars eclipsed higher prices for medical care and air fares.

The tame reading for the Consumer Price Index, one of the government's most closely watched inflation gauges, came after prices shot up by 0.5 percent in April, the biggest jump in nearly a year, the Labor Department reported Tuesday.

Even as the economy mends from last year's recession, the inflation environment has remained well behaved. That's good news for shoppers looking for some bargains and for the national economy as well, which is experiencing a choppy recovery.

One area of the economy that held up well during the slump and is continuing to do well is the nation's housing market, thanks to low mortgage rates.

In another report, the Commerce Department said that housing construction soared by 11.6 percent in May, the biggest increase since July 1995.

The Bush administration, while welcoming the housing news, wants to make sure the rebound gets stronger.

``That's more positive news, but we need to continue to take steps to encourage economic growth and job creation,'' said White House spokesman Scott McClellan. He cited as examples Bush's tax cuts, energy plan and legislation granting Bush expanded power to negotiate trade pacts.

On Wall Street, stocks were sluggish. The Dow Jones industrial average was off 6 points, while the Nasdaq index was up about 6 points in the first hour of trading.

In the CPI report, the core rate of inflation, excluding volatile energy and food prices, moderated in May, edging up 0.2 percent, down slightly from a 0.3 percent advance the month before.

The flat reading on the CPI was slightly better than the tiny 0.1 percent rise many analysts were expecting, while the showing on the core rate of inflation matched forecasts.

With inflation under control, the Federal Reserve will have leeway to keep short-term interest at 40-year lows to help along the economic recovery. Many economists believe the Fed will leave rates unchanged at its next meeting on June 25-26 and probably into the summer.

Although companies, whose profits took a hit during the slump, may be itching to raise prices, many will probably be restrained by competition and cheaper imported goods flowing into the United States, economists say.

Moreover, lackluster consumer demand seen recently by weak sales at the nation's retailers also should serve as a force keeping a lid on prices increases.

The flat reading on the CPI in May was the best performance since consumer prices dipped 0.1 percent in December.

Helping out the benign showing was a 0.7 percent drop in energy prices last month, which leaped 4.5 percent in April. World oil prices recently cooled off as global output increased, fears of supply disruptions receded and demand was sluggish.

The drop in overall energy prices in May largely reflected a 2.8 percent decline in gasoline prices. Prices for fuel oil, electricity and natural gas, however, all rose.

Food prices, meanwhile, nudged down 0.2 percent in May, after a small 0.1 percent rise. Falling prices for vegetables, beef, veal and pork, blunted rising prices for fruits, poultry and dairy products.

Clothing prices dropped 0.6 percent last month as retailers discounted spring and summer merchandise. New car and trucks prices dipped 0.2 percent.

But prices for medical care continued their upward rise, advancing 0.5 percent in May. Prices for medical care are running 4.7 percent higher than a year ago.

Prices for air fares rose 1.8 percent, the largest increase in a year.

For tobacco products, prices fell 2.7 percent in May.

For the first five months of this year, all consumer prices rose at a seasonally adjusted annual rate of 3 percent. That compares with an increase of 1.6 percent for all of 2001. Much of the pickup reflects higher energy prices this year, which fell sharply last year.