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The New
York Times
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July 19, 2000, Wednesday, Late Edition -
Final
SECTION: Section C; Page 1; Column
5; Business/Financial Desk
LENGTH: 1098
words
HEADLINE: Price Index Is Up Sharply, Led by
Energy
BYLINE: By LOUIS UCHITELLE
BODY:
With rising oil and natural
gas prices squeezing nearly every household, the Consumer Price
Index jumped by 0.6 percent in June, the Labor Department reported yesterday.
But apart from energy, inflation remained mild.
Natural gas is the
heating fuel for most homes and commercial buildings, and gas
prices shot up 7.8 percent, the biggest one month increase since the
Bureau of Labor Statistics began tracking them in 1952. With inventories
depleted, the price jump reflected fear of shortages this winter, the bureau
said. Wall Street focused on the narrower core rate of inflation, which excludes
energy and food, two areas where prices jump around from month to month. This
core rate was up only 0.2 percent in June, matching the increase in four of the
five previous months.
Still, core inflation, which many view as
providing a better indicator of underlying inflationary pressures, has edged up
gradually since last year. For the 12 months ended in June, the rise was 2.4
percent, compared with 1.9 percent in 1999. Some economists argue that in a
still-robust economy, in which demand is sufficient to allow companies to raise
prices on a growing number of goods and services, the oil price shock may speed
up the increase in core inflation.
"The risks are all toward a gradual
acceleration of inflation," said Jan Hatzius, an economist at Goldman, Sachs.
Rising rents, for example, helped to push up housing costs 0.5 percent
last month, although natural gas accounted for most of the increase. Airline
fares rose by 1.5 percent, with higher fuel costs cited as a justification. But
demand played a role, analysts said. Without so much ticket-buying, the higher
fares might not have stuck, and the rising cost of fuel would have come out of
profits.
"It is difficult to assess whether fuel prices are driving up
fares, or fully booked flights are doing so," said Patrick Jackman, a senior
economist at the bureau's consumer price division.
Stock market
investors seemed to find in the June report on consumer prices a reason for the
Federal Reserve to increase interest rates at its next policy making meeting, on
Aug. 22 -- although that view might change as more data on the economy becomes
available in the next five weeks, including the July consumer price report. Rate
increases fight inflation by slowing the economy, and fresh expectations of
higher rates tend to push down stock prices.
The Dow Jones industrial
average fell 64.35 points, 0.6 percent, yesterday, to 10,739.92, and the Nasdaq
composite index dropped 97.50, or 2.3 percent, to 4,177.17.
The Clinton
administration focused on the core rate in June. In a statement, Labor Secretary
Alexis M. Herman said, "Core consumer prices remain moderate despite pressure
from energy prices." The administration has insisted that the booming economy is
not inflationary, suggesting, in effect, that the Fed should go easy on interest
rates. Six Fed rate increases since June 1999 have already helped to produce a
mild slowing of the economy.
Energy prices are not easily held in check
by interest rate increases. Rate increases are intended to discourage borrowing
and spending, thus diluting demand, particularly among consumers. But oil prices
have risen because of OPEC's decision 16 months ago to restrict production, a
restriction just now being lifted. Consumer demand played no role.
"You
are hard-pressed to find energy prices that have been passed along yet, or
workers able to demand wage increases to keep up with price increases," said
Dean Baker, an economist at the Center for Economic and Policy Research in
Washington.
Mr. Baker and others argue against further interest rate
increases on the ground that the worst of the energy price increases are over.
The 8.8 percent rise in gasoline prices in June, to $1.66 a gallon, on average,
is not likely to be repeated in July. Weekly reports from the Energy Department
say that gasoline prices hit a peak on June 19 and have since declined, though
natural gas prices are likely to continue to rise until inventories are rebuilt,
Mr. Jackman said.
Others, however, see in the oil shock an important
role for the Fed. Their argument is that rising fuel prices must reverberate
through a strong economy -- for example, encouraging workers in a period of low
unemployment to demand higher wages to keep up with rising fuel bills. These
would be passed along to consumers through price increases.
"The labor
market is tight as a drum, the economy is growing like a bandit and this is not
the time to be tolerant of oil price shocks," said Stephen S. Roach, chief
economist at Morgan Stanley Dean Witter. He pointed to several surveys in which
many business executives said they planned to raise prices this year.
A
service sector index published by the Bureau of Labor Statistics, one that
excludes energy, rose at an annual rate of 3.7 percent the first six months of
this year, up from 2.7 percent in 1999.
Energy dominated the 0.6 percent
June increase in the consumer price index, the largest increase since a 0.7
percent rise in March. Energy certainly contributed to the rising cost of
maintaining a home -- not only the increase in natural gas prices but also an
0.8 percent rise in electricity bills. But outside housing and transportation,
the only major jump in prices came in medical care, particularly hospital bills.
"Medical care costs have started to accelerate somewhat," Mr. Jackman
noted. For the 12 months ending in June, they were up 4.1 percent, compared with
3.7 percent in 1999. "Hospital charges are the major story," Mr. Jackman said,
"not what people pay their private physicians."
Otherwise, apparel
prices fell again, as they have most of this year. Discounting accounted for
much of the decline. Food prices rose a mild 0.1 percent, mostly because of
higher prices for beef and fresh vegetables. Recreation costs rose 0.3 percent,
with most of the increase in the prices of movie and theater tickets, and entry
to sports events. New vehicle prices edged down 0.1 percent, while used vehicles
rose 0.2 percent.
Tobacco prices fell, the result of discounting.
Education costs jumped 0.8 percent, reflecting increases in tuition fees at
private secondary schools. But telephone services fell in price. So did
computers and computer equipment, and products that use oil as a raw material --
plastics, for example, and other petrochemicals -- did not rise in price.
Indeed, an index of commodity prices, less food and energy, shows no change from
last year, the Bureau of Labor Statistics reported.
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GRAPHIC: Graph/Chart:
"Consumer Prices"
Percent change, month to month.
Graph
tracks Consumer Prices, Seasonally adjusted since Jan. 1999.
Major Metropolitan Areas
Not seasonally adjusted
% change
from previous: Month/Year
New York: +0.3/+2.9
Los Angeles:
-0.1/+3.3
Chicago: +1.3/+4.1
San Francisco+: +0.2/+4.2
Philadelphia+: +0.4/+2.5
Detroit+: +1.6/+4.3
Boston+ (May):
-0.6/+4.2
Dallas+ (May): +0.1/+3.8
Houston+: +0.9/+3.8
Washington+
(May): -0.3/+3.0
*Not seasonally adjusted.
+Calculated
bimonthly. Figures are for June, except as noted.
(Source: Bureau of Labor
Statistics)(pg. C25)
LOAD-DATE: July 19, 2000 
