|
CPI flat again in June
|
 |
July 15, 1999: 12:21 p.m. ET
Analysts see lack of inflation as signal for Fed to hold rates steady
|
NEW YORK (CNNfn) - U.S. consumers saw no inflation for the second straight month in June, the government said Thursday -- a cue for the Federal Reserve to hold interest rates steady even as the economy continues to boom.
The consumer price index was flat last month following no change in May, the Labor Department reported, marking the first time the CPI hasn't risen for two straight months or more since the February-to-April period of 1986.
Plunging energy prices and a related drop in air fares -- oil is a key cost for airlines -- kept the index from rising. Economists expected the CPI to edge up 0.1 percent.
The so-called "core" index, excluding the volatile food and energy prices, rose 0.1 percent in June after May's 0.1 percent gain. Economists had expected a rise of 0.2 percent in June.
Markets initially welcomed the news, but by afternoon had given up most of their early gains. The 30-year Treasury bond was off 3/32, for a yield of 5.92 percent, while the Dow Jones industrial average was up 13.30 points to 11,161.40 in the early afternoon.
Fed at ease, but beware "alarm bells"
One economist said the report should allow the Federal Reserve to hold interest rates steady, barring any surprises, after they raised short-term rates last month in a bid to ward off inflation. When they raised rates last month, the central bank's policy-makers also dropped their "bias" toward any further rate increases for now. The Fed's quarter-point increase followed an exceptional spike in the CPI in April.
"The inflation outlook remains very, very comfortable and certainly based on these numbers the Fed should feel very much at ease with current monetary policy," Kathleen Stephansen, senior economist at Donaldson, Lufkin & Jenrette, told Reuters.
"This is not to say that going forward we will continue to have these types" of numbers, she added. "I think alarm bells would start to develop if you get monthly numbers of 0.3, but flat to 0.1 are still very positive numbers here."
And then there are a series of other economic reports, such as gross domestic product growth during the second quarter and July's CPI, which the Fed will mull before it next meets on Aug. 24.
The CPI numbers come a day after a report showing a slight drop in wholesale prices in June. Viewed along with the CPI, the producer price index shows an broad picture of the U.S. inflation climate.
The wholesale-price report, however, showed inflation pressure in the production pipeline for raw materials, like wheat, and intermediate-phase goods, such as flour before it becomes bread.
As for consumer prices, fueling the stability was a sharp retreat in energy costs. Gasoline prices sank 3.2 percent, the biggest decline since falling by 3.4 percent in May 1997. Don't expect that to continue, one analyst said.
That decline, said Miller Tabak bond analyst Anthony Crescenzi in a research note, "is likely to be reversed in July. The [Bureau of Labor Statistics] has already pointed to that possibility and the likelihood that gasoline will add 0.1 percent to the July report."
Airline fares, which climbed in each of the five previous months, fell for a second straight month, down 0.5 percent in June. Apparel costs fell while medical care costs rose.
Meanwhile, in a sign sales continue to boom despite low inflation, the Commerce Department reported business inventories climbed 0.3 percent in May even though total sales from manufacturers, retailers and wholesalers shot up a seasonally-adjusted 1.2 percent to $819.5 billion.
|
|
|
|
|
|
Labor Department
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
