Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, August 12, 1995 TAG: 9508140059
SECTION: BUSINESS PAGE: A6 EDITION: METRO
SOURCE: BLOOMBERG BUSINESS NEWS
DATELINE: WASHINGTON LENGTH: Medium
The consumer price index, or CPI, rose just 0.2 percent in July.
And a separate report showed retail sales posted an unexpected 0.1 percent decline in July -- following two consecutive gains -- while prices for goods and services barely budged.
Slow sales should hold back economic growth and keep a lid on inflation in coming months, said Robert Dederick, an economic consultant at the Northern Trust Co.
``Any notion that the economy was going to turn around on a dime should be put aside,'' he said. ``We're not far from the Federal Reserve's goal of a non-inflationary soft landing.''
The Labor Department said energy costs, which make up 7 percent of the consumer price index, fell 0.8 percent in July -- the largest drop since May -- after rising for three months in a row. Gasoline costs fell 2.1 percent for the biggest decline since March 1991.
July's CPI reading follows a mild 0.1 percent gain in June.
As long as consumer spending remains sluggish, retailers will find it hard to raise prices. The July retail sales report, for example, showed auto sales were especially weak, even though dealers offered discounts and other incentives.
In 1996, ``inflation may be lower than in 1995,'' said Raymond Stone, a managing director at Stone & McCarthy Research Associates in Princeton, N.J.
Underscoring that idea, the CPI's core rate, which excludes often-volatile food and energy costs, rose only 0.2 percent in July after rising 0.2 percent in June, the Labor Department said.
July's drop in gasoline prices came as retailers ``started shaving their prices'' in anticipation of the end of the summer peak driving season, said William Berman, energy director at the American Automobile Association.
``They had the flexibility to do this,'' Berman said, because marketers were earning good profit margins earlier in the year.
Crude oil prices reached their lows for the year in July, declining from a peak of around $21 a barrel in April. Since late July, crude prices have been climbing as refiners seek to bolster their inventories to keep pace with near record demand.
Additionally, there were pockets of strength in the retail sales report, which was published by the Commerce Department. Excluding autos, retail sales rose 0.4 percent.
That may indicate consumers were willing to spend last month, but ``hot weather may have kept people off of dealer lots,'' said Kevin Flanagan, money market economist at Dean Witter Reynolds Inc.
Transportation costs also fell last month, declining 0.4 percent as new car prices retreated. Airline fares and auto finances charges also decreased.
Retail food prices, which make up 16 percent of the index, increased 0.2 percent in July. Lower vegetable prices offset higher costs for fruit, beef and pork.
While many goods prices, most notably foods and beverages, have shown little change, service costs continue to increase. About 55 percent of the CPI measures the cost of services, such as airline tickets and medical appointments.
In other categories, medical costs increased 0.4 percent in July, the largest rise since December; housing and entertainment costs increased 0.3 percent; and tobacco prices showed no change. Tuition and other school fees climbed 0.6 percent last month.
by CNB