Consumer Prices Jump 0.6 Percent

Tuesday, July 18th 2000, 12:00 am
By: News On 6

WASHINGTON (AP) — Soaring gasoline prices and a record jump in the cost of natural gas were largely responsible for a sharp increase in consumer inflation last month. Most other prices were tame.

``People are paying a lot more at the gasoline pump, and inflation is a lot higher as a result, but outside the energy sector, inflation is low,'' said Mark Zandi, economist with RFA Dismal Sciences.

The split picture left economists divided about whether the Federal Reserve will push interest rates higher next month to keep inflation in check.

After a tiny rise in May, the Consumer Price Index, the most closely watched inflation gauge, shot up a seasonally adjusted 0.6 percent in June, the largest increase since March, the Labor Department reported Tuesday.

The jolt came from an expected leap in energy prices, which hit their highest point in 14 months with a 5.6 percent bounce.

Outside the volatile energy and food categories, inflation's ``core'' rate rose just 0.2 percent for a third consecutive month, suggesting that most other prices remain under control. The core performance matched many analysts' expectations.

Economists believe surging energy prices will ease in coming months as oil-producing nations boost production. Still, some analysts worry to what extent existing energy price increases might eventually spill over and push up other product prices.

In June, skyrocketing energy costs were reflected in higher costs for airline fares and other transportation prices.

``I don't think the Fed can safely go to sleep for another couple of quarters,'' said Tim O'Neill, chief economist for Bank of Montreal and Harris Bank.

The Federal Reserve has boosted interest rates six times over the last 13 months to slow economic growth and keep inflation in check.

June's CPI report offered ammunition not only for economists who think the central bank will leave interest rates unchanged at its Aug. 22 meeting but also for those who believe rates may be raised.

Those who favor leaving rates alone cited the low monthly core rate and pointed out that core inflation advanced at a 2 percent rate in the second quarter, compared with an increase at a 3.2 percent rate in the first quarter. Some analysts said those figures suggest moderating core inflation.

Analysts in the camp of an interest-rate increase were uneasy that surging energy costs will spill over into other product prices and foment an upward drift in core inflation. They cited figures that show core inflation rose at a 2.6 percent rate in the first six months of this year, compared with a 1.9 percent rate for all of 1999.

On Wall Street, stocks slumped despite some strong profit reports by major companies and the mostly unsurprising inflation report. The Dow Jones industrial average had lost 68 points in afternoon trading.

So far this year, overall consumer prices have been rising at an annual rate of 4.2 percent, compared with a 2.7 percent increase for all of last year. The pickup in this year's prices results mostly from rising energy costs.

In June, gasoline prices rose 8.8 percent, the biggest increase in three months. The surge reflects a number of factors including refinery capacity problems, tight inventories, higher crude oil prices and new environmental regulations.

Prices for natural gas grew by a record 7.8 percent, surpassing the previous record in 1972. Economists blamed that on supply shortages.

Higher energy prices took their toll on air fares, which rose 1.5 percent.

Food prices rose by a slim 0.1 percent, as falling costs for fruit, dairy products and poultry helped blunt higher prices for beef and vegetables.

Elsewhere in the report, the price of tobacco products, including cigarettes, fell 1.3 percent. Clothing prices dropped 0.6 percent, the smallest increase since the beginning of the year, reflecting discounting by merchants. New-car prices declined by 0.1 percent as manufacturers offered various incentives.

Prescription drug prices rose, however, by 0.3 percent. Economists have blamed rising drug prices on increased demand by aging baby boomers and the introduction of more expensive new drugs.