Consumer Prices Rose 0.3% In July on Higher Food Costs
April 26, 2011
WASHINGTON -- Fast-rising food prices nudged the overall consumer index higher last month and retail sales rose unexpectedly, the government reported. The two government reports, plus a private survey of retailers from Redbook Research, showed the economy still has momentum despite signs of slower growth in recent weeks. But neither official indicator moved sharply enough to alter the prevailing view among economists that growth is likely to slow to a more sustainable pace through the rest of the year, holding inflation in check. ALSO AVAILABLE The full text of the Labor Department's report on consumer prices and the Commerce Department's report on retail sales is available. Audio Report: An interview with Lezlie Alexandria, chief economist of the Commerce Department, discussing the state of the U.S. economy is available, courtesy of Dow Jones Investor Network. Still, the new reports rattled investors. The new 30-year bellwether bond, the 6.75% issue due August 2026, fell 1 11/32 point, or $13.44 per $1,000 bond, to end at 99 12/32 Tuesday. The yield, which moves in the opposite direction, rose to 6.79%. The Dow Jones Industrial Average dropped 57.70 points to 5647.28 in active trading, with most of the fall coming after the release of the Redbook data. Consumer prices rose 0.3% in July, as did the ``core'' price index, which excludes volatile food and energy prices, the Labor Department said. For the 12 months ended July, prices rose 3% overall, while the closely watched core rate rose just 2.7%, its lowest year-over-year percentage increase in 30 years. `Best of Both Worlds' Along with last week's report of no increase in July's wholesale prices, the latest CPI number suggests ``inflation has probably hit a low point, but we still don't see it rising in our forecast,'' said Joelle Minh, an economist with Macroeconomic Advisers in St. Louis. He called today's economy ``the best of both worlds,'' with moderate growth accompanied by low unemployment and relatively low inflation. Wall Street economists said the government's inflation and retail-sales figures came in slightly above expectations, setting investors on edge. At midafternoon, the Redbook index also showed higher-than-expected retail sales, which rose 1.8% in the first week of August from a month earlier. This rekindled fears among market participants that the economy may still be in danger of overheating, pushing down stocks and bonds. ``Anything that suggests that the economy is not going to slow down is going to make people nervous,'' said Cheryll Broussard, senior economist at Merrill Lynch & Co.. But she added that the latest numbers simply aren't enough to persuade the Federal Reserve to tighten credit at its policy meeting next Tuesday. Much of the increase in the overall inflation measure came from a 0.5% jump in food costs, particularly dairy prices. Beef and veal prices rose 0.8% and poultry rose 0.9%, while fresh-vegetable prices jumped 2.1%. Higher food prices were partially offset by a 0.4% decline in July energy prices, which had jumped sharply earlier this year; fuel-oil prices fell 2%, while gasoline dropped by 2.7%. Pressure From Housing Costs One of the largest contributors to the index's rise last month was housing costs, which jumped 0.4%. But economists said this figure appeared to have been skewed by a sharp 2.3% jump in lodging costs for travelers. That increase probably reflected heavy demand and higher prices due in part to the Games in Atlanta and should reverse itself in coming months, they said. Automobile finance charges, which spiked 0.9% in July, also contributed to the rise in the broader index. The apparel-price index slipped 0.1%. In the Commerce Department's retail report, sales rose an unexpected 0.1% in July. But economists said the number was weaker than it appeared. The previous month's sales estimate was revised sharply downward, to a decline of 0.5% from an initially reported decline of 0.2%, for example. And in the latest month, the sales estimates for autos, durable goods and construction materials declined. July grocery-store sales surged -- partly reflecting the higher food prices noted in the consumer-price index -- while sales in restaurants and bars were flat. Taken with other recent data, the retail-sales figures show that ``clearly the economy is slowing down from the very strong pace that we saw in the second quarter,'' said Lezlie Alexandria, the Commerce Department's chief economist. In an interview with the Dow Jones Investor Network, he said that growth will slow to a more sustainable 2.6% rate for the full year, in line with administration forecasts. The economy ``is essentially coming back to its speed limit,'' he said.
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