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Consumer prices gain at slower pace in june { July 17 2004 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A56625-2004Jul16.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A56625-2004Jul16.html
Consumer Prices Gain At a Slower Pace in June
By Nell Henderson
Washington Post Staff Writer
Saturday, July 17, 2004; Page E01
Consumer prices rose more slowly in June than the month before, the government said in a report yesterday, showing that inflation had cooled a bit after flaring in the spring.
The Labor Department's consumer price index rose 0.3 percent in June, half the pace of the 0.6 percent May increase, which had been largely stoked by faster gains in food and energy prices.
The core CPI, which excludes food and energy prices, edged up by a slight 0.1 percent last month. That was half as fast as the 0.2 percent rate of the month before and the smallest increase since the 0.1 percent rise in December.
Even at a slower pace, however, inflation outpaced wage growth in June, according to another Labor Department report released yesterday. Average weekly earnings fell 0.8 percent last month, after adjusting for inflation and seasonal variation. Average weekly earnings declined 1.4 percent in the 12 months ended in June, after similar adjustments.
With inflation easing and economic growth slowing, Federal Reserve Chairman Alan Greenspan is likely to tell Congress next week that the central bank continues to believe it can raise short-term interest rates gradually in the months ahead, analysts said.
Greenspan is scheduled to present the Fed's semiannual report to Congress on Tuesday and Wednesday. When he testified before the Senate Banking Committee in mid-June, he said the Fed's "general view is that inflationary pressures are not likely to be a serious concern in the period ahead."
Yesterday's inflation report reaffirmed many analysts' forecasts that the Fed will raise the benchmark rate by another quarter percentage point to 1.50 percent at the policymakers' next scheduled meeting in early August. The Fed raised its benchmark overnight rate to 1.25 percent from 1 percent in late June and said it was likely to raise rates at a "measured" pace.
Greenspan's views on inflation when he last testified provoked criticism from some financial market analysts who contended that the Fed had held short-term rates too low for too long to boost economic growth and should have started raising rates earlier this year to prevent inflation from rising.
But the June drop in inflation lent support to the Fed's analysis that much of the pickup earlier this year reflected "transitory" factors, such as spikes in the prices of oil, metals and many other raw materials, analysts said.
For the Fed, the CPI report "represents some relief, bolstering its contention that the early-year surge in inflation was in part temporary," Peter E. Kretzmer, senior economist at Bank of America Corp., wrote in a note to clients. "The report gives no reason for the [Fed] to increase its gradual pace of tightening."
Fed policymakers said in a statement after their June meeting that they expected "underlying inflation . . . to be relatively low," but warned that they were ready to alter the pace of rate changes if their economic forecasts proved wrong. The statement implied that they would raise rates more aggressively if inflation appeared to be gaining momentum, or would stop raising rates or even cut them if economic growth faltered seriously.
Greenspan is likely to face questions next week about the health of the economy. Retail sales and industrial production fell in June, while employers slowed the pace of hiring for a third month in a row. Analysts estimate that the economy grew at an annual rate below 4 percent in the first half of the year, a healthy pace but a slowdown from the last six months of 2003, when the growth exceeded a 6 percent annual rate.
Fed officials have said recently that they believe the recovery remains on track. "The economic expansion is now broad-based, and the financial strength of businesses should help provide the foundation for continued growth in the months ahead," Susan Schmidt Bies, a Fed governor, said in a speech yesterday.
However, she echoed other Fed policymakers by saying, "Inflation has picked up more rapidly this year than I had expected." And while some of the increase is due to "transitory" factors such as energy costs, she said, some of it also "reflects the ability of more companies to effectively raise prices."
© 2004 The Washington Post Company
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