July 15, 2005 in Business

Inflation absent as spending increases

Associated Press

WASHINGTON — Inflation was stuck in the deep freeze last month as consumers enjoyed lower prices for fresh vegetables and clothing and a temporary respite from rising gasoline cost.

It was the second straight month of good news on consumer prices. In May, the Consumer Price Index had actually edged down by 0.1 percent, the first time prices had fallen in 10 months.

The declines in energy prices are expected to reverse themselves in July, reflecting a rebound which pushed crude oil prices above $61 per barrel last week and sent gasoline pump prices to a record nationwide average of $2.33 per gallon.

But economists believe an expected jump in energy costs will not be enough to change the benign picture on inflation overall. To support that view, they pointed to a number of areas of declining price pressures in the June CPI report.

Food prices were unchanged last month, helped by declines in the cost of vegetables, beef, pork, poulty and dairy products. New car prices were also unchanged and analysts predicted they will actually show declines in July as the impact of new sales incentive programs are felt and clothing costs fell for third time in the past five months.

“Impressively tame,” economist Joel Naroff said in describing the June inflation report.

Meanwhile, another government report Thursday showed that consumers — who account for two-thirds of total economic activity — were revving up their engines in June. The Commerce Department reported that retail sales increased by 1.7 percent in June, nearly double what forecasters had expected.

The strength came from a 4.8 percent gain in auto sales, the strongest in 13 months. General Motors, followed by other automakers, brought back attractive incentive offers.

Sales at department stores, specialty clothing stores and furniture stores also were positive.

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