Consumer prices stay flat in June Slowdown takes pressure off Fed

July 15, 1993|By Kim Clark | Kim Clark,Staff Writer

Consumer prices stayed flat in June, the government said yesterday, providing further evidence that inflation remains in check and that interest rates would stay low for the rest of the year.

Price increases early in the year sparked concern that the economic recovery would drive prices higher and force the Federal Reserve to raise interest rates to control inflation.

But yesterday, the Labor Department said June was the first month that consumer prices had not risen since the end of the recent recession, in March of 1991.

And on Tuesday, the department reported that wholesale prices registered a decline of 0.3 percent in June -- the biggest drop in more than two years -- which means that retailers will feel little pressure to pass on higher prices in coming weeks.

(In Baltimore, grocery prices rose less than a third of a percentage point, while the nation's food prices fell 1 percent. But Maureen Greene, an economist with the Bureau of Labor Statistics which prepared the inflation report, said Baltimore's food prices in June were an aberration. Over the long term, local prices have generally tracked those of the nation, she said.)

"The next few months are safe" from significant interest rate increases, predicted Anna Schwartz, a New York economist who has co-written books on monetary history with Nobel Laureate Milton Friedman. The low inflation rate will allow the Federal Reserve governors "to do what they would like to do politically," she said.

President Clinton has made it clear he does not want the Fed to boost rates -- a move that he fears could choke off the weak recovery when he wants to increase taxes to alleviate the budget deficit.

But Ms. Schwartz expects the central bankers will consider raising interest rates some time next year to prevent inflation from picking up a year or two from now.

Yesterday's good inflation news was accompanied by a report of continuing, though moderate, improvements in retail sales.

The Commerce Department said that growing demand for new cars pushed retail sales up 0.4 percent in June. It was the third straight monthly increase after a drop in the first quarter.

Economists and business leaders said June's reports are the latest in a series that has painted a picture of an economy moving ahead in stops and starts.

As a result, they tempered their earlier optimism and now expect sales and hiring to grow slowly, if at all, over the rest of the year. Hopes for significant job market improvements, and expectations for a pickup in inflation, have now been deferred to early 1994.

Debashis Guha, a research economist at Columbia University's Center for Business Cycle Research, predicted the inflation rate will continue low for at least the next six months because the job market is soft and price increases could not be supported.

Noting that the U.S. unemployment rate rose a tenth of a percentage point to reach 7 percent in June, he said one way companies are keeping prices down is by cutting labor costs, often by trimming work forces. And he sees little immediate hope that widespread hiring will pick up.

"A lot of people have been turned out of work and are not going to be employed any time soon," he said.

But Paul Boltz, economist for the Baltimore-based T. Rowe Price mutual fund company, was more optimistic, noting that over the last six months, employment has improved.

"It is moderate growth and moderate inflation. We say around here, 'No boom, no bust,' " Mr. Boltz said.

Local business people said the sputtering economy has led them to put on hold for at least six months plans to add staff or raise prices.

Henry Shofer, third-generation owner of Shofer's Furniture Co. on South Charles Street, said sales so far this year have been "spotty. We have a few good days and some bad days," he said.

Although June was better than May, and he's been squeezing his profit margin to keep sales up, Mr. Shofer said business wasn't strong enough to allow him to raise prices.

Charles Berger, co-owner of Berger's Cakes and Cookies, a large bakery on Aiken Street, said that although June was one of his best months in years, July is turning out to be poor.

He said he's had to find new stores willing to sell his sweets to keep sales up and had to absorb higher egg prices.

He plans to re-evaluate his sales in December to see if he can pass on some higher costs to customers.

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