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News > Economy
U.S. prices edge higher
July 18, 2001: 11:40 a.m. ET

Government's main inflation gauge rises more than expected in June
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NEW YORK (CNNfn) - Consumer prices edged higher in the United States in June, the government said Wednesday, pointing to a possible rise in inflation in the sluggish U.S. economy even as Alan Greenspan said another interest-rate cut could be coming.

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The Consumer Price Index, the government's main inflation gauge, rose 0.2 percent last month, the Labor Department reported, after increasing 0.4 percent in May. Analysts polled by Briefing.com expected a 0.1 percent rise.

Excluding often-volatile food and energy prices, the "core" CPI rose 0.3 percent after increasing 0.1 percent in May. Analysts had expected a 0.2 percent rise.

The data came ahead of congressional testimony by Federal Reserve Chairman Alan Greenspan, in which he said inflation seemed to be contained and the risks to the U.S. economy were for further weakness -- meaning the Fed might cut interest rates again this year.

Many economists agreed with Greenspan.

"This is O.K. news on inflation," said Kurt Karl, U.S. chief economist at Swiss Re in New York. "There is no major worry here. No components are rising rapidly."

Separately, the Commerce Department reported housing starts rose 3 percent to an annual rate of 1.66 million in June, after falling a revised 1 percent to 1.61 million in May. Analysts polled by Briefing.com expected a rate of about 1.62 million.

"Housing continues to remain the anomaly in this downturn, [with] continued strength coming presumably from the impact of a low unemployment rate, good income growth and historically high levels of home affordability," said Kathleen Camilli, chief economic strategist at Tucker Anthony.

June housing start rates were at their highest rate since 1.67 million units in January, but housing permits -- an indicator of the confidence of builders in the economy -- fell 3.3 percent in June to an annual rate of 1.57 million, the lowest level in permits since December's rate of 1.55 million.

On Wall Street, stocks fell early on worries about earnings, but recouped some of their losses while Greenspan spoke. Treasury bond prices rose.

Click here for CNNfn.com's economic calendar

The Fed has cut its target for short-term interest rates six times this year, from 6.5 percent to 3.75 percent, in an effort to avoid a recession.

The Fed is also responsible for fighting inflation, but has expressed little concern about that so far this year. Though the CPI data were unexpectedly strong Wednesday, the government said last week that wholesale prices fell in June.

"We would really have to see some more persistent kinds of problems" before sounding alarms about inflation, Robert Brusca, chief economist with Ecobest Consulting, told CNNfn's Before Hours program. "The headline numbers are not that ill-behaved that we would be concerned about it at this point."

In Wednesday's report, the government said consumer energy prices fell 0.9 percent in June, though they still were up 11.8 percent for the year.

The cost of electricity jumped 3.8 percent in June, the largest increase on record. But natural gas prices fell 5.6 percent, the largest decline on record. The cost of gasoline fell 2.6 percent, the best showing since March's 3.8-percent drop.

Fed cuts GDP outlook

Emphasizing its worries about continued economic weakness, Fed policy-makers Wednesday cut their forecast for economic growth in 2001, as measured by Gross Domestic Product (GDP).

The Fed cut its forecast for 2001 economic growth to a range between 1 and 2 percent, from its earlier estimate of between 2 and 2.75 percent.

The Fed predicted the economy would rebound to a stronger rate of growth in the range of 3 to 3.5 percent in 2002. graphic


- from staff and wire reports

  RELATED STORIES

Fed chairman Greenspan says economy could need more rate cuts - July 18, 2001

Producer prices fall, retail sales rise in June - July 13, 2001

Fed cuts interest rates a quarter point; sixth cut in 2001 - June 27, 2001

Consumer prices rise in May, meeting expectations - June 15, 2001

  RELATED SITES

June CPI report

June housing starts report


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