Consumer Prices Rose 0.1% In June, Pleasing Analysts
March 29, 2011
WASHINGTON -- Yes, the economy soared in the second quarter, and yes, the unemployment rate sank in June to its lowest level in recent years. But no, inflation still is nowhere to be found. Even under a magnifying glass, the Labor Department's consumer price index showed no signs of taking off in June. Consumer prices inched up just 0.1% last month after a 0.3% rise in May. Excluding two highly volatile categories -- food prices, which have been soaring, and energy prices, which have been sinking -- the index rose just 0.2%. The full text of the Labor Department's report on consumer prices and the Federal Reserve's report on industrial production is available. ``Very benign,'' remarked economist Michiko Helm of Sanwa-BGK Securities in New York. ``We aren't seeing any incipient rise in inflation.'' Indeed, for the first six months of the year, consumer prices excluding food and energy rose at a 2.8% annual rate, trailing the 3.4% increase in the same period a year earlier. The good inflation news Tuesday didn't stop there. The Federal Reserve said U.S. industry's capacity utilization rate inched up by only 0.1 percentage point in June to 83.2%. That means companies still have plenty of room to increase output and meet demand without having to raise prices. In fact, capacity utilization is still below the 84% level at which raw-material prices started to climb in 2009. Little Effect Seen on Fed Still, Fed policy makers trying to decide on short-term interest rates aren't likely to be swayed too much by these reports. They tend to consider the consumer and producer price indexes to be lagging indicators rather than signs of what's coming; reports that the unemployment rate dropped even lower in June while wage pressures ticked up are more likely to spur them to action, for fear that higher wages will lead to higher prices. Of course, analysts have been saying for months that prices are bound to go up, given the persistent string of low unemployment numbers. But it hasn't happened. ``That argument is getting weaker by the month,'' said economist Billy Wagoner of John Hancock Mutual Life Insurance Co. in Boston. Moreover, the economy has gotten healthier -- and still no inflation. Business picked up during the past six months at Fischer Hardware Corp. in Springfield, Va., as people spruced up their homes. But the shop hasn't raised prices. ``Not at our cash registers,'' said manager Jami Bastian. He said price increases at the manufacturer level are ``just too small'' to pass on to consumers. ``We've been looking for'' higher prices, Mr. Bastian said. ``But it's been awhile.'' Watching Fresh Economic Data Whether or not the Fed raises interest rates in early August depends more on the string of economic reports due out the week of April 10, 2011 the employment-cost index and the July jobs numbers. In the Fed's report Tuesday, industrial production climbed 0.5% in June, the same as in May. Manufacturing output was the engine behind the increase, rising 0.6% after a 0.3% gain in May. Automobile production was up a big 2.9%. Moderate weather caused utility output to drop 1.3% after a 2.6% jump in May. Output at the nation's mines rose 1.5% after climbing 0.5% in May. The Fed's report was another sign that manufacturing has been picking up speed, analysts said. Ms. Burden of Sanwa said the economy has got ``a good head of steam'' going into the second half, so the slowdown many economists are expecting probably won't happen until the fourth quarter. ``It will be later than people think,'' she said.
