Prices increase modestly, industrial production up

Jeannine Aversa

Wednesday, July 16, 2003 | 9:47 a.m.

WASHINGTON -- Consumer prices increased by a modest 0.2 percent in June as the cost of energy, clothes and airline fares rose. Big industry boosted production for the second straight month.

The advance in the Consumer Price Index, the government's closely watched gauge of inflation, came after prices decreased by 0.3 percent in April and were flat in May. Today's Labor Department report might ease concerns that the country could be headed for deflation, an economically dangerous long-term slide in prices.

Separately, the Federal Reserve reported that industrial activity at the nation's factories, mines and utilities nudged up by 0.1 percent in June for the second consecutive month, a sign that the battered industrial sector may be turning a corner. June's performance was right on target with economists' predictions.

At factories, production rose by 0.4 percent in June, the best showing since January. Mining output went up 1 percent, while production at gas and electric utilities dropped 3.5 percent, reflecting unseasonably cool weather, the Fed said.

The two reports painted a picture of an economy that is working to get back to full economic speed.

On Wall Street, stocks moved lower. The Dow Jones industrial average lost 72 points and the Nasdaq index was off 15 points in the first hour of trading.

Excluding energy and food products, "core" consumer prices held steady in June, after rising by 0.3 percent in May, suggesting that prices for other goods and services are largely under control.

The 0.2 percent rise in the CPI matched analysts' forecasts, while the showing on core prices was a bit more restrained than the tiny 0.1 percent increase that economists were expecting.

The Federal Reserve on June 25 cut a key interest rate by one-quarter percentage point to 1 percent, a 45-year low. The Fed reduced this rate to rev up economic growth to guard against an outbreak of deflation.

Fed Chairman Alan Greenspan told members of Congress Tuesday that the Fed will keep rates at low levels "for as long as it takes" and might cut them even further to revive the sluggish economy.

The CPI in June was lifted in large part by a 0.8 percent rise in energy costs, which had fallen by a sharp 3.1 percent in May.

Energy prices are rising in part on fears that the oil-producing nations might cut production levels for crude oil. But for natural gas, shortages are the problem. That worries Greenspan, who doesn't see much relief in sight.

Natural gas prices rose by 3 percent and gasoline prices went up by 1.3 percent in June.

Food prices, meanwhile, increased by 0.4 percent last month, following a 0.3 percent advance. June's advance was led by a 3.4 percent rise in the price of fresh vegetables. Prices for beef and veal, fruits, poultry and pork also went up in June.

Clothing prices rose by 0.4 percent in June, but for the first six months of this year clothing prices are declining at an annual rate of 3.9 percent as merchants discount apparel to motivate shoppers.

Airline fares were up 2 percent in June, the largest increase in two years. Medical care costs rose 0.3 percent, continuing to put a strain on consumers' pockets.

For the first six months of this year, all consumer prices are increasing at an annual rate of 2.2 percent, compared with a 2.4 percent rise for all of 2002. Core prices, excluding food and energy, went up at a rate of just 0.9 percent so far this year, compared a 1.9 percent rise for all of last year.

In another report, business stocks of unsold goods edged down by 0.2 percent in May, while sales were flat, the Commerce Department reported. Companies, wanting profits to improve and unsure of customer demand, have been keeping a close eye on inventories and have been cautious about increasing them.